Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — ENVIRONMENT

Environmental Protection

Dr. Liam Fox: To ask the Secretary of State for the Environment what progress has been made in environmental protection over the past year.

The Secretary of State for the Environment (Mr. John Selwyn Gummer): A full account will be given in the third year report on "This Common Inheritance", which we will publish on 10 May.

Dr. Fox: In discussing that report, will my right hon. Friend make the strongest possible representations to the French Government over the proposals to extend the shooting season, which will result in the unnecessary and unacceptable slaughter of many British migratory birds? Is my right hon. Friend aware—I hope that he is—that many people in the United Kingdom will find that to be an arrogant and unacceptable proposal, and completely distasteful?

Mr. Gummer: I have already made it clear to the French Government that any consideration of the proposal to which my hon. Friend has referred must be in the context of there being no change in the present practice. They have assured me that they will take the scientific advice that has so far been given by Ornis, but there is more scientific advice to be obtained. I note that the European Parliament has declined to discuss the matter at this stage. The British Government have taken the clear view that the issue of migratory species is a matter of European Community competence, and we are determined to protect those birds that come to this country.

Mr. Simon Hughes: The Secretary of State's claims that he is protecting the environment look pretty thin when he publishes a 1993 report only in May 1994, when he drops his plans to set up contaminated land registers, when we still have not had before us any legislation on the Environmental Protection Agency and when there are no longer any long-term targets for limiting CO2 emissions. Worst of all, the Government and their friends have tabled more than 200 amendments and new clauses, which are clearly intended to wreck the Energy Conservation Bill being promoted by my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith). Is the Secretary of State aware that that measure would do more for the environment than anything that he is now doing?

Mr. Gummer: The Liberal party is utterly unable to make any such comment ever since it reneged on its support for proper taxes on energy consumption. The hon. Gentleman knows very well that his position is untenable. We have heard the usual Liberal demand for something for nothing. The hon. Gentleman is entirely wrong in all his other allegations. We are reporting for the third year running on these matters at a later date because of the publication of the report on sustainable development, which has been widely welcomed. Only the Liberal party would make such silly allegations.

Mr. Michael Spicer: My right hon. Friend will be aware that the River Severn was severely polluted last weekend. In the light of that experience, will he have a word with the water regulator to ensure, first, that the quality of water is properly monitored and, secondly, that when such pollution occurs, samples are taken and analysed quickly so that the public can be accurately and properly informed of what is going on?

Mr. Gummer: My hon. Friend is right to draw attention to a serious incident. My hon. Friend the Minister for the Environment and Countryside was in the area yesterday. There was an immediate inquiry into the matter. The points that my hon. Friend has raised will be taken fully into account. As far as we can see at this stage, the measures to which my hon. Friend referred were taken. The inquiry will establish that. We shall naturally seek to learn as much as possible from the inquiry to ensure that there is no repetition of that incident.

Mr. Chris Smith: Will the Secretary of State acknowledge that, over the past year, the environmental protection record of local government has been better than that of central Government? The right hon. Gentleman is fond of pouring scorn on Labour local authorities. Why is it that of the 11 local authorities that have been specially invited by the Government to make a presentation on best practice to the Partnerships for Change conference, not one is controlled by the Conservative party? Of the eight district councils selected by the Government as examples of best environmental practice, seven were controlled by the Labour party. Will the right hon. Gentleman now praise the pioneering work of Labour councils on environmental protection?

Mr. Gummer: I am happy to say that up until now we have managed to praise the environmental work of a large number of councils of different political colours, and this is the first time that a party political division has been drawn into the matter. The hon. Gentleman should be ashamed of himself. The only party in the House that has no right to talk about the environment is the Liberal party because it has reneged on all its willingness to support those matters. The Labour party must remember that I have criticised only the fact that it has the vast majority of the councils which demand the most money for the least services. It costs £131 more to pay the council tax in Labour councils—[Interruption.]—and the hon. Member for Blackburn (Mr. Straw), who is trying to intervene, has had to admit that his figures are phoney—phoney councils, phoney figures, Labour councils.

Mr. Nicholas Winterton: Would my right hon. Friend think that it was making progress in protecting the environment if an application to establish opencast coal operations were granted at Towers Farm in Poynton in my


constituency, in a most sensitive green belt area right on the edge of Cheshire and on the boundary of Greater Manchester, against the opposition of local residents, the parish council and the borough council and at a time when British Coal is closing coal mines as though there were no tomorrow?

Mr. Gummer: I do not think that the cause of environmental protection would be helped much if my hon. Friend were to receive an answer in the House of Commons to what is a properly constituted inquiry into the matter, in which the environment will play a major part. I hope that my hon. Friend will wait for the results of that properly constituted inquiry and my decision on it. As to his comments about the coal industry, that is a matter for the coal companies themselves.

Coal Mines (Water Pollution)

Mr. Ronnie Campbell: To ask the Secretary of State for the Environment what plans he has to protect areas surrounding closed coal mines from the potential pollution of watercourses.

Mr. Etherington: To ask the Secretary of State for the Environment what discussions he has had concerning mine water pollution; and if he will make a statement.

The Minister for the Environment and Countryside (Mr. Robert Atkins): My hon. Friend the Minister for Energy is considering the detailed allocation of responsibilities in respect of coal mines after privatisation, as between the operators and the Coal Authority.

Mr. Campbell: Throughout the county of Durham, wildlife is being destroyed and farmers' fields are being flooded. Surely someone must take responsibility for the pollution. I know that the Government want to renege on their responsibility, but is not it time that someone stood up and took the matter in hand?

Mr. Atkins: I am grateful to the hon. Gentleman for —like others of his colleagues—raising that important matter, which we are seeking to address. That is why, following the last Environment Question Time when the matter was raised, I took it upon myself to talk to my colleague the Minister for Energy. At present, if there is a particular cause of pollution, the National Rivers Authority should be spoken to. If the hon. Gentleman has a specific case in mind and would like to talk to the NRA, but has been unsuccessful, I should be pleased if he would take the matter up directly with me.

Mr. Etherington: The Minister will be aware that the National Rivers Authority is of the opinion that the law is somewhat unclear about British Coal's responsibility for pollution. Does he accept that many people are afraid that when private enterprise has the responsibility—if it can be called that—of keeping pollution at bay, the situation might get worse? Can he assure the House that he will take the necessary action to tighten up the legislation and ensure that no additional burden falls on either water ratepayers or council taxpayers in the areas concerned where there is likely to be a diminution of deep mining?

Mr. Atkins: As I have said, I recognise the concern. The hon. Gentleman is unfair in his attack on private enterprise—in many areas, private enterprise has demonstrated a good record on environmental activity and

pollution control—but I understand what he is saying. We have recently published a document called "Paying for our Past" and we have invited various people and organisations to comment on what we should do about contamination of the sort that the hon. Gentleman has mentioned. I know that the hon. Gentleman's points, and those of the hon. Member for Blyth Valley (Mr. Campbell) and the others who share his worries and concerns, will be dealt with when we consider the results of that consultation.

Mr. George Howarth: Is not it far from the case that the NRA has the responsibilities that the Minister has just suggested that it does? Does the Minister agree with Lord Crickhowell, the chairman of the NRA—no raving socialist, I understand—who said recently:
There is a legacy of contamination for which no one is currently responsible, no one is prepared or able to pay the necessary clean-up bill, and no one is charged with the running—

Madam Speaker: Order. I am sorry, but I think that the hon. Gentleman is aware that he may not quote at Question Time. He may paraphrase, not quote directly.

Mr. Howarth: Certainly, Madam Speaker. Is not it clear from the comments of Lord Crickhowell that the responsibility that the Minister claims already rests with the NRA simply does not? Will the Minister undertake to the House that when the Environmental Protection Agency legislation comes before the House, he will consider using that opportunity to clear up the confusion? I assure him that, if he does that, he will get co-operation from the Opposition.

Mr. Atkins: Under the Water Resources Act 1991, it is an offence for mine owners to cause or permit the pollution of water courses. There is legislation, but I recognise that there are some questions about exemptions because of the retrospective aspect of the legislation.
Lord Crickhowell's comments during a debate in the House of Lords the other day are part and parcel of the consultation procedure. His views, as the chairman of the NRA, will be considered as important, along with those of others who respond to the consultation document on contaminated land.

Council Tax

Mr. John Marshall: To ask the Secretary of State for the Environment if he will list the top 10 council taxes and the bottom 10 council taxes.

The Minister for Local Government and Planning (Mr. David Curry): The highest council taxes in descending order have been set by Liverpool, Manchester, Newcastle, Coventry, Langbaurgh, Salford, Bristol, Cleethorpes, Middlesbrough and Hartlepool.
The lowest council taxes in ascending order have been set by Westminster, Wellingborough, Wandsworth, the Isles of Scilly, the City of London, Hambleton, Tewkesbury, Rochester, South Cambridgeshire and Ealing.

Mr. Marshall: My hon. Friend has drawn attention to the success of Ealing in setting a low council tax. Is he aware that in 1986, when I was a member of the Ealing council, it boasted the lowest rates in west London? Is he also aware that 12 months later—following 12 months of


Labour control—the rates had gone up by 65 per cent? Does not that show that Conservative councils cost people less and Labour councils cost people more? Is he also aware that Westminster schools are so good that they appeal to one Labour Member, who prefers Westminster schools to Lambeth schools?

Mr. Curry: There is one essential statistic in all of that. It is that Conservative councils cost people less—precisely £131 less across the country.

Mr. Betts: Is not the Minister using fiddled figures in making comparisons? Does he agree that the only true comparison is that made by using the average rate of council tax? That simply takes into account the amount that a council spends and how many people live in that area. The use of bands is distorted because the different spread of property types and values in an area is reflected in those figures. Does the Minister agree that no one would use that comparison objectively? Is not it only those who would try to use the figures for cheap political advantage who would use bands, rather than another comparison?

Mr. Curry: For Opposition Members to talk about distorted figures is pretty rich. The hon. Member for Blackburn (Mr. Straw) quoted figures which entirely overlooked the fact that the three precepting authorities were Labour. Nothing is more irrelevant than to use the average tax per household, as it depends on the level of banding in that property and on the amount of grant that is given. The lower the banding, the greater the grant, and Labour councils are delegated even more grant. The trouble is that they do not use it very well, and that Is the heart of the argument.

Mr. Congdon: Does my hon. Friend find it interesting that those authorities in London that receive the highest levels of grant from the Government, such as Lambeth, Haringey, Camden and Islington, also levy the highest council taxes? Is not it even more revealing that those authorities that receive the lowest levels of rate support grant, such as Wandsworth and Westminster, are able to charge the lowest council taxes?

Mr. Curry: That is exactly right. It might be helpful if I spelt out those standard spending assessment levels, so that we can get the facts right. Tower Hamlets receives £1,481 per capita—that is not a Conservative council—Hackney receives £1,305, and Islington £1,185. Westminster is number four, receiving £1,167, and Wandsworth does not appear in the top 10 at all.

Mr. Straw: Could the Minister explain why so much money has been stuffed into Wandsworth in non-meansrelated grant? Wandsworth contains 0.5 per cent. of the country's population, but receives 11 per cent.—£44 million—of all non-means-related grant. Could he also explain why, in Westminster, £96 of every £100 of council spending is contributed by central Government, while the council tax payer spends just £4?
The Minister claims that the average household tax is irrelevant. Can he explain why that measurement was used this time last year in a private Conservative party briefing document, and was also used in a public Department of the Environment official press release the day before the council tax came into force? Is not the truth that it was only when Conservative Ministers discovered that Labour costs

less that they dropped that measurement? Is not it also true that, while the average council tax is £493 in Conservative areas, it is £453 in Labour areas? Labour costs £40 less.

Mr. Curry: The hon. Gentleman is an astrologist, not a mathematician. He does not understand the system to begin with. Let me make it clear. Why does Wandsworth receive the grant that it receives? Because its community charge was zero, to the great benefit of its population, the transit relief had to be at a higher level, and because it had the biggest cut in standard spending assessment. That is why it has the damping grant.
The reason for the proportion of grant that Westminster receives is the fact that it sets a budget below its standard spending assessment. If Westminster set a budget as far above its SSA as Liverpool has, it would have to charge 22 per cent. in its council taxes, which is more than Liverpool charges.

Construction Industry

Mr. Spring: To ask the Secretary of State for the Environment what role he foresees for his Department over the next 12 months in sponsoring the construction industry.

The Minister for Housing, Inner Cities and Construction (Sir George Young): The Department will build on the enhanced support that it is giving to the construction industry in order to encourage its success in both home and overseas markets.

Mr. Spring: Is my right hon. Friend aware of the £6 billion worth of exports undertaken by the United Kingdom construction industry during 1992? Is he satisfied that the industry is receiving sufficient support and can he cite any initiatives that would help it to gain a still larger share of the world market?

Sir George Young: I pay tribute to the construction industry's work in generating some £6 billion in overseas earnings: that shows that there is a demand for British products and skills. My hon. Friend the Under-Secretary has just returned from India—where he led an export drive —clutching a fistful of new orders. I am off to Beirut next week, and to Kazakhstan next month, with the construction industry, and my right hon. Friend the Secretary of State is off to Chile and Argentina. The Department will do what it can to help British companies to win orders and generate work for British people.

Mr. Battle: Why do not the Government act now to forge a clear link between housing construction, employment and the health of our economy? As well as encouraging the industry to win contracts in Berlin and Beirut—which we welcome—why not also let local authorities use their £5.5 billion worth of capital receipts from council house sales to get thousands of our 500,000 construction workers back to building and repairing the homes that are desperately needed for rent here in Britain?

Sir George Young: The hon. Gentleman clearly has not seen the figures that we published yesterday about the construction industry. Construction orders for the latest three months were 14 per cent. up on the previous three months—31 per cent. higher than a year ago. Public sector building orders are 50 per cent. up on 1991. There has been a real about-turn in the construction industry, with the most


positive forecasts that we have seen for many years. I hope that the hon. Gentleman will rejoice at the better news that is now coming out of the industry.

Mr. Ward: My right hon. Friend will be aware that Sir Michael Latham is about to produce an important report on the construction industry. May we be assured that the Government will consider it carefully and will provide any legislative time that may be needed to implement it?

Sir George Young: As my hon. Friend says, our former colleague Sir Michael Latham is carrying out an important study into construction. His interim report was published a few weeks ago and was well received. He hopes to complete his work in July. It is a tribute to his work that the interim report was well received, and certainly the Government and all those in construction who await his final report in July will give it the serious consideration that it rightly merits.

Green Ministers

Mr. Bayley: To ask the Secretary of State for the Environment on how many occasions in the past year the departmental green Ministers have met together.

Mr. Atkins: Green Ministers have regular bilateral meetings. The last full meeting took place in October 1993, and the next one will take place in May.

Mr. Bayley: Do the green Ministers realise that the forest sales programme is eating away at the heart of the national forest? Will they explain how their stated aim of expanding forest cover, as set out in the document "Sustainable Forestry", will be achieved if they allow private investors to buy the public forest instead of planting their own forests? When will the forest review report finally appear?

Mr. Atkins: That report is currently in front of Ministers and in due course the hon. Gentleman and the House will hear the results of those deliberations.

Sir Donald Thompson: Will my hon. Friend the Minister explain what are green Ministers?

Mr. Atkins: Green Ministers are those Ministers from various Departments who, under the tutelage of my right hon. Friend the Secretary of State for the Environment, take various actions in their Departments to ensure that the use of materials, recycling, energy use and other matters are regularly reviewed and that the Government estate benefits in the same way as everyone else.

Housing (Wolverhampton)

Mr. Turner: To ask the Secretary of State for the Environment if he will make extra funds available for housing improvement grant allocations in order to deal effectively with the backlog of housing renovations and repairs in (a) Wolverhampton an (b) other cities and towns.

Sir George Young: Within their overall resources, local authorities may spend whatever they wish on private house renovation and my Department will reimburse 60 per cent. of their expenditure.

Mr. Turner: In the current year, Wolverhampton's housing improvement grant allocation has been reduced by just under £4 million. There are thousands of post-war

properties crying out for improvement, especially new forms of heating. Children in families are cold and the lives of elderly people whose homes need new insulation techniques that ought to be applied to those properties are being affected.

Dame Elaine Kellett-Bowman: Question.

Mr. Turner: I am asking for more resources to respond to the real housing needs in Wolverhampton and in many other cities and towns.

Sir George Young: I recently spent a morning in Wolverhampton in the company of the leader of the council, the Conservative Bill Clark, and I saw at first hand the improvements that the local authority is carrying out to properties in the constituency of the hon. Member for Wolverhampton, South-East (Mr. Turner).

Mr. Turner: Was the Minister electioneering?

Sir George Young: Indeed I was, and rightly so. I hope that the hon. Gentleman will also be electioneering. During my electioneering, I got positive support from those whom I met. The hon. Gentleman will be pleased to know that many of his constituents appreciate the improvements to their properties that are being carried out by the Conservative-controlled Wolverhampton city council.

Mr. Budgen: Does my right hon. Friend appreciate that the people of Wolverhampton understand that socialists always believe that every housing problem can be cured by throwing taxpayers' money at it? The people of Wolverhampton are increasingly buying their own homes, and they are enjoying the current low interest rates, which make it possible for an increasing number of people to make their own housing provision.

Sir George Young: I am sure that my hon. Friend speaks for a majority of the people in Wolverhampton when he refers to their aspirations to home ownership—aspirations which are now much more within their reach due to the very low rates of interest. I hope that many people in Wolverhampton will take advantage of the present low interest rates to achieve their ambition and buy property in Wolverhampton. There are many good-quality new schemes being built by builders, offering people homes at competitive prices.

Mr. Pike: The Minister knows that the Federation of Master Builders agree with towns such as Wolverhampton that they have not enough money to meet their statutory requirement to meet mandatory grants. Will he make additional resources available to Wolverhampton and other local authorities now, or is he going to end the right and entitlement to mandatory grant?

Sir George Young: As the hon. Gentleman knows, we have just completed a review of the improvement grant regime, which considered a number of radical options, one of which would be to enable local authorities to have a more proactive approach and promote more home improvement areas. The Government will announce the conclusion of that consultation exercise later this year.

Mr. Faber: Is my right hon. Friend aware that there are about 801 pre-reinforced concrete homes in my constituency in west Wiltshire, many of which are substandard and some of which are in danger of falling down? Is he further aware of the plans submitted by the


district council to transfer the entire stock to the private sector for restoration—plans that have so far been blocked by the Treasury? Can he assure me that in his Department, he will give a fair hearing to the district council when it resubmits the plans, so that those people who live in appalling conditions in PRC homes will have a better chance in the future?

Sir George Young: As my hon. Friend rightly says, it has not proved possible this year to find a place in the large-scale voluntary transfer programme for the properties to which he refers. I very much hope that it will be possible to restructure the proposal of his local authority, so that the transfer of those properties can proceed in 1995–96, and we will certainly do all that we can to facilitate such a transfer.

Energy Conservation

Mr. Harvey: To ask the Secretary of State for the Environment what further measures he plans on energy conservation.

The Parliamentary Under-Secretary of State for the Environment (Mr. Tony Baldry): Our further measures to encourage energy efficiency are clearly set out in the United Kingdom's climate change programme, in our strategy for sustainable development launched recently by the Prime Minister, and in our response to the Environment Select Committee's report on energy efficiency.

Mr. Harvey: Can the Minister reassure the House that the decision by the Government and their hon. and right hon. Friends on the Conservative Benches to table more than 200 amendments and new clauses to the Energy Conservation Bill has nothing to do with the desire for the amount of electricity consumed to be maximised before the sale of the remaining 40 per cent. Government stake in the two national power companies? Is there not a direct contradiction between those two Government policies—energy conservation on the one hand and maximising the revenue from those sales on the other?

Mr. Baldry: Only a Liberal Member of Parliament could dream up such a fantasy. The straightforward fact is that the Bill would impose a statutory duty to compel every local authority to inspect and audit every home in the country, not only their own housing stock, and we believe that that would impose an unnecessary extra regulatory burden on local authorities and unnecessary extra costs on taxpayers.

Dr. Twinn: Will my hon. Friend join me in congratulating Midland Electricity on its generous gift of £500,000 to Neighbourhood Energy Action in support of its excellent work, supported by the Government, to insulate low-income homes? Will he take the opportunity to encourage other British electricity companies and others in the energy field to give money to NEA?

Mr. Baldry: I fully support everything that my hon. Friend says. Neighbourhood Energy Action does some excellent work, especially the work that it does with the home energy efficiency scheme. That scheme has been nearly doubled to £75 million. It provides grants to improve the energy efficiency of low-income households and will enable 400,000 homes to be treated in 1994–95. That is an indication of the support that the Government give to energy efficiency.

Mr. Cecil A. Walker: Can the Minister explain why he is stopping the application of the Energy Conservation Bill to Northern Ireland?

Mr. Baldry: That, I suspect, is one of the matters that the House will wish to consider and debate at some length on Friday.

Mr. Batiste: Does my hon. Friend agree that one of the primary purposes and benefits of energy conservation is that it reduces the need for energy production and the environmental damage caused by it, especially by such means as opencast mining? As his contribution to that process, how soon will he publish the revised guidelines for MPG3?

Mr. Baldry: We hope to publish the revised guidelines by the summer.

Mr. Chris Smith: On this Friday's Energy Conservation Bill, am I right to assume from the Minister's answer to the hon. Member for North Devon (Mr. Harvey) that the Government are opposed to that measure? Is that why more than 200 amendments have been tabled in an apparently deliberate attempt to sink the Bill through lack of time? Is that why the Government are attempting to change the fundamental principle of the Bill from placing a duty on local authorities to allowing a permission for local authorities, thereby undermining the entire purpose and benefit of the Bill? If the Government engineer the collapse of that measure, will not they be left without a shred of credibility on energy conservation?

Mr. Baldry: I made clear the Government's approach to the Bill on Second Reading. It is ludicrous for the hon. Gentleman to suggest that, in some way, the Bill is a touchstone of the Government's attitude to energy efficiency. Our commitment to energy efficiency is clear and constant. The budget of the Energy Efficiency Office has been increased to more than £100 million this year, which represents an increase of nearly 50 per cent. on last year and a 17-fold increase in real terms since 1979. We have a clear commitment to energy efficiency, but we do not believe in imposing unnecessary regulatory burdens on local authorities, which will not necessarily bring further benefit to energy efficiency.

South West Water

Mrs. Browning: To ask the Secretary of State for the Environment what plans he has to discuss with South West Water the charging policy for water consumers.

Mr. Atkins: Both the Department and Ofwat have had a number of discussions with South West Water about the importance of keeping price rises to the minimum.

Mrs. Browning: Is my hon. Friend aware that, since the latest increase this month, there is now grave concern at the ability of those on fixed incomes and pensioners with modest savings in my constituency of Tiverton to find the money to meet this year's bill, let alone the expected increases in future years? When speaking to South West Water, will my hon. Friend examine carefully its contribution to the investment in the clean up of south-west beaches and its exorbitant charging for installing water meters? Will he also make representations to his


colleagues in the Treasury to ensure that they are aware that financial help will be needed to assist the people of the south-west?

Mr. Atkins: I understand the concern that my hon. Friend represents, which has been expressed to my right hon. Friend and me by hon. Members from the south-west on numerous occasions. As we all know, there are many beaches in the south-west of England, but fewer people than in the rest of the country to pay for the clean up required, as well as the cost of water. I shall convey my hon. Friend's concerns to my colleagues in the Treasury and to the water companies.

Ms Corston: Is the Minister aware of the growing consensus against the use of compulsory water metering, which is considered a waste of money that should be spent on repairing our ancient water system, and in favour of using council tax bands to assess water bills?

Mr. Atkins: The hon. Lady's view is not held unanimously, even on her side of the House. Many people feel that metering has a part to play, just as it does in charging for electricity and gas. Given that we are discussing the use of a long-term resource with increasing demands on it, metering seems to be the fairest and simplest way to charge for it. However, I recognise that concerns have been expressed about the possibility of council tax banding. Hon. Members must understand that, were that option to be considered, it could be just as damaging in terms of people's pockets as any of the other options.

Sir John Hannam: Is my hon. Friend aware that water prices for the average householder in the south-west have nearly doubled in the past few years and will double again by the end of the decade if something is not done? With the water regulator now beginning his work on preparing the charging formula for July's announcement, does my hon. Friend accept the urgency of getting agreement in Brussels on slowing down the implementation of the EC directive?

Mr. Atkins: I am aware of the concern, largely because many of my hon. Friends have expressed it to me and the Secretary of State. On the directive on urban waste water treatment, we are doing exactly what he asks and seeking to persuade the Commission and our colleagues within the Union that that matter will cost far more than they expected. They are beginning to understand that. As a result, it may be recognised that it can be spread over a longer period.

EC Directives

Ms Quin: To ask the Secretary of State for the Environment when he next expects to meet his European Union counterparts to discuss the implementing of EC environmental directives.

Mr. Gummer: The next formal Environment Council will be on 8 and 9 June. The agenda has yet to be determined.

Ms Quin: Will the Secretary of State be discussing the implementation of EC water quality directives? Will he confirm that it was the Conservative Government who signed the drinking water directive in 1980? Will he give an estimate of the number of jobs that would have been created if the Government had honoured their commitment

and improved water quality as they said they would? Will the Government also confirm that a green dowry was given to the water companies at the time of privatisation specifically to bring our water quality up to EC standards?

Mr. Gummer: The hon. Lady is right to draw attention to the importance of those standards. I am concerned that we should reach those standards in the most sensible, cost-effective way. There is no doubt that many of the costs associated with reaching those standards are considerable. Some of the legislative measures—not only in the directive, but others—are prescriptive. We want to achieve the standards sensibly. In the post-Maastricht period, it might be more sensible to regard drinking water standards as matters of subsidiarity to a greater extent than they were viewed in the past. It is reasonable to treat them in that way. I do not see why the subject should divide the House.

Mr. Steen: Does my right hon. Friend agree that there is no point in being part of Europe if the other European countries do not play by the rules? Will he ensure that, for every European environmental directive, each country embarks on a compliance-cost assessment? That would ensure that every country knew how much the directive would cost before it embarked on it and how much it would cost to enforce it. Britain should not go it alone and follow the directive until every other country has done the same, and there must be cross-border enforcement.

Mr. Gummer: The manifest advantages of our membership of the European Union are enhanced if we ensure that EU countries undertake a cost-benefit analysis before decisions are made. I want to go one stage further than my hon. Friend suggests—I want the Commission to produce figures in advance of making the proposition in the first place. That would be sensible government—it is what we would expect in this country and certainly what we would expect in the European Union.

Mr. Kilfoyle: When the Secretary of State meets his European Union counterparts, will he discuss objective 1 funding, which partly covers environmental needs and designates Merseyside as one of the poorest areas in Europe? Will he explain to them why the Government choose to pump millions into rich, Tory-controlled boroughs in the south of England at the expense of areas in the north which, by the Government's own definition, are deprived?

Mr. Gummer: I will certainly explain to them that the system by which we provide money to different parts of the country is based on an objective system worked out by the largely Labour-controlled council associations. They may have misread a statement by the hon. Member for Blackburn (Mr. Straw), who was special adviser in the Department of the Environment when Labour found that Westminster's need per head was £486.47 and Liverpool's was £326.95. The difference was 49 per cent. in Westminster's favour. While the Conservative Government have been in power, it has been 33 per cent. We can see the truth of the hon. Gentleman's slurs.

Mrs. Gorman: Will my right hon. Friend take time when he next meets the European Environment Commissioner to discuss the latest directive proposing to phase out chlorine from industrial activity? Is he aware that chlorine is a basic component of bleach, which every housewife needs to clean the loo and to bleach shirts and


sheets? Is he aware that chlorine is a basic component of PVC and clingfilm, which every housewife needs to wrap up scraps before putting them in the fridge? Is he aware that Britain has the two largest PVC manufacturers in the world that provide thousands of jobs, which will go if the directive is implemented? There are at least 250 manufacturers of packaging material based on PVC. The directive will create an enormous vacuum and many job losses.

Mr. Gummer: I find it difficult to agree with my hon. Friend's suggestion that those jobs are done only by housewives. I hope that they are done by both sexes in the home. For environmental reasons, we need to look extremely carefully at the use of chlorine. Although it is a most useful chemical, it should be used in a way that is not detrimental to the environment. The Department is determined to ensure that our children's future is put first. Therefore, if it is possible beneficially to restrain the use of chlorine, that is what we shall do.

Mr. Dafis: Has the right hon. Gentleman discussed with the EU Environment Commissioner chapter 10 of the White Paper on competitiveness and growth? If he has, does he agree that it shows a new understandmg of economic policy and the fact that economic success and job creation are both compatible with and strengthened by environmental sustainability? Will the Government support the principle of that chapter, which is to shift the burden of taxation away from jobs and people on to the overuse of resources and pollution?

Mr. Gummer: I am sure that it is right to accept that environmental protection is a spur to competitiveness and to industrial success, rather than the opposite. Therefore, I hope that the hon. Gentleman will join us in supporting a major example of putting taxes on the overuse of energy —I refer, of course, to my right hon. Friend the Chancellor's imposition of 17.5 per cent. VAT on fuel.
I note that the hon. Gentleman's party, like the Liberal Democrats—not to the same extent, but in the same direction—speaks in generalities about these matters, but is never prepared to put its name to the cost of delivering green policies. The Conservative party is prepared to pay the cost and deliver the policies.

European Policy

Mr. Loyden: To ask the Secretary of State for the Environment what items of environmental policy he has raised in the past month with the European Commissioner.

Mr. Atkins: I have discussed a wide range of environmental policy issues with Commissioner Paleokrassas in the past month.

Mr. Loyden: Next month, the Government will have the opportunity to ban toxic waste from EU countries. Will the Minister assure the House that he will take immediate steps to impose that ban in this country and in all developed countries from next month?

Mr. Atkins: We have signed the convention, which takes effect on 6 May. Therefore, the answer to the hon. Gentleman's question must be yes.

Mr. Clifton-Brown: Does my hon. Friend agree that EU environment directives should be better framed and should always be based on the latest scientific evidence?

Does he further agree that the policy of the Labour and Liberal Democrat parties of environment directives being scrutinised—

Madam Speaker: Order. We are here not to discuss Labour and Liberal Democrat policies, but to question the Executive. Would the hon. Gentleman like to rephrase his question?

Mr. Clifton-Brown: Thank you for that stricture, Madam Speaker. Does my hon. Friend agree that Labour and Liberal Democrat policies—

Madam Speaker: Order. I shall move on unless the hon. Gentleman asks a proper parliamentary question. I shall give him another chance.

Mr. Clifton-Brown: Thank you, Madam Speaker—third time lucky. Does my hon. Friend agree that the Labour and Liberal Democrat parties—[interruption]

Madam Speaker: Order. We shall move on.

Mr. Barnes: The Court of Auditors is one of the more effective organs of the European Union. It has produced a number of devastating reports, including one showing that most EU expenditure happens to be counterproductive to environmental matters. The Government's view was defeated in the European Legislation Committee because the Government had dragged their feet over discussing the report. Is the matter now being taken seriously by the Government and the Commission?

Mr. Atkins: Yes.

Supermarkets

Mr. Ian Taylor: To ask the Secretary of State for the Environment what proportion of planning applications for new supermarkets are for in-town sites.

Mr. Gummer: We do not hold the information in that form.

Mr. Taylor: My right hon. Friend probably holds some information in some form. Does he recognise that my normally tranquil and serene constituency of Esher is at present up in arms about the villains from Tesco and Sainsbury, who are attempting to put superstores on the edges of communities in my constituency in Thames Ditton and Long Ditton? They would not be out-of-town shopping centres, but shopping centres on the edge of communities which would rip the hearts out of those communities. He has received thousands of letters opposing those developments; will he consider carefully the damage that superstores cause to communities in semi-urban areas?

Mr. Gummer: My hon. Friend would not want me to comment specifically about decisions which I may have to take from a quasi-judicial position, but, in general terms, my view is that we need to take those decisions in the light of the viability of the shopping centres in high streets of small towns and large towns and also in some less urban areas. That is the purpose of PPG 6—the planning guidance on town centres and retail development—and the joint planning guidance on transport—PPG 13—with the Secretary of State for Transport. Putting the two together,


my hon. Friend should have confidence that we are determined to protect the viability and life of our traditional high-street shopping centres.

Mr. Hardy: While I do not disagree with the Secretary of State, will he look into the question recently drawn to my notice of applications for developments that are described as warehouses or buildings for leisure pursuits, when the real intention is to develop retail outlets of the sort that he apparently deplores?

Mr. Gummer: I am determined to ensure that the same planning rules shall be laid upon all comparable developments, and merely calling them something different will not exclude the full planning procedures. The hon. Gentleman is right to say that there are some who seek to do that; I will seek to make sure that they fail.

Mr. Brandreth: Is my right hon. Friend aware how welcome his recent proposals on out-of-town shopping centres have been in constituencies such as mine, where thriving inner-city, city-centre shopping is of paramount importance to the economy and quality of life of the community? Is he aware that the balance that he is introducing in his proposals is widely welcomed in Chester?

Mr. Gummer: It is important not only to get the balance corrected, but to raise the standard of the design of the shops when they come back into city centres and the centres of our small towns. That is why I turned down a particular proposal in Ludlow, where the design was not up to the quality of the town centre it sought to enhance.

Mr. Vaz: May I congratulate the Secretary of State for finally acknowledging that the Labour party policy on out-of-town developments, on which we have been campaigning for years, is the right one? Will he now apologise to the councils that have had their decisions overturned and the developers that now face hundreds of extant planning permissions which, on current completion times, will take years to finish? How does he propose to compensate local communities that have had their green belts ruined, and the local authorities that have seen the destruction of their town centres because of the myopic policies of this Government?

Mr. Gummer: It is very often the local Labour council that has given the planning permission. That was a pretty rich comment, even for the Labour party. It would be nice if the hon. Gentleman at least could say that after a perfectly reasonable period where the retail revolution was allowed to continue, providing a considerable number of jobs and choices for the people of Britain, we are now saying that the balance should be reverted—in a different direction. That is perfectly reasonable. We are not in any sense resiling from the view that there ought to be a mix, but we need vibrant city centres. We are encouraging that, not only through the planning process, but through the enormous sums of money that we are putting into our city centres in such excellent policies as city challenge and similar ones which were opposed virulently by the Opposition.

Flora and Fauna

Mr. Fabricant: To ask the Secretary of State for the Environment what steps his Department is taking to protect endangered flora and fauna indigenous to the British Isles from extinction.

Mr. Atkins: The Wildlife and Countryside Act 1981 provides comprehensive statutory protection for endan-gered wild species of flora and fauna and their habitat in Great Britain. Further measures will be introduced shortly to meet legal objectives under the EC habitats directive.

Mr. Fabricant: Does my hon. Friend agree with me that the biodiversity action plan steering group will provide a major opportunity to protect in the United Kingdom endangered species such as the dormouse, red squirrels, otters, pine martens, the lady's slipper orchid and, indeed, strapwort? Will my hon. Friend also confirm that he intends to protect the habitat and species named in the UK Red Data book?

Mr. Atkins: Yes.

Mr. Foulkes: Does the Minister accept that two of the most endangered species in Britain are Tory councillors and Tory MPs, and that no amount of grant gerrymandering by the Government will save them from near extinction on 5 May and 9 June?

Mr. Atkins: I wish that there were protection for the loud-voiced bamboozler which is obviously represented by the hon. Gentleman.

Mr. Kenneth Carlisle: Does my hon. Friend agree that the only enduring way to protect wildlife is to conserve and create habitat? Will he therefore work with my right hon. Friend the Minister of Agriculture, Fisheries and Food to ensure that the habitat scheme is made effective under the new set-aside arrangements?

Mr. Atkins: As I think the House knows, my hon. Friend has a distinguished record in, and knowledge and understanding of, these matters through his own personal experience. I will certainly give detailed consideration—indeed, I am doing so—to the points that he raises.

MPG3

Mr. Gunnell: To ask the Secretary of State for the Environment how many appeals by private mining companies against refusal to agree opencasting by local authorities he has (a) allowed and (b) rejected since the introduction of the present mineral planning guidance note 3.

Dr. Wright: To ask the Secretary of State for the Environment if he will make a statement on the environmental impact of opencast coal mining.

Mr. Bill Michie: To ask the Secretary of State for the Environment what representations he has received from local authorities on the issue of the draft mineral planning guidance note 3 on coal mining and colliery spoil disposal; and if he will make a statement.

Mr. Mike O'Brien: To ask the Secretary of State for the Environment if he will make a statement on mineral planning guidance on opencast.

Mr. Baldry: My Department's records show that the Secretary of State has allowed 30 appeals and dismissed 17. Opencast coal mining can have a serious environmental impact. That is why we have revised the planning guidelines for coal extraction to ensure that they set tough environmental tests for the industry. The consultation period for MPG3 has only just expired. I will place a list of those who responded to the consultation exercise together with a summary of their comments in the Library of the House in due course.

Mr. Gunnell: Does the Minister agree that the data that he has given to me about the results of appeals show that the present mineral planning guidance very much favours mining companies above the interests of local authorities and local communities? In considering the revision that is going on at the moment, will he examine the needs of areas such as Morley—one half of my constituency—which faces six planning applications: three of which have been granted, one of which is pending, and two in which mining companies have shown an interest? Will he accept that there is a cumulative effect upon communities to which they should have a right to object? Does he understand that when the last planning application was given, local people did not want to see it accepted or the appeal granted by the Minister?

Mr. Baldry: If the hon. Gentleman had looked at the draft new mineral planning guidance, he would have seen that the strong presumption in favour of opencast coal development in MPG3 which did exist is being withdrawn and replaced with a test of environmental acceptability. I should have thought that Opposition Members would welcome that.

Dr. Wright: Is the Minister aware that one of the largest opencast sites in the country is located in my constituency? In making the planning application, British Coal said that it was necessary in order to mix the coal from this site with the coal from Lea Hall colliery, and then Lea Hall colliery was closed. British Coal then said, "We need the coal to mix it with the coal from Littleton colliery" and then Littleton colliery was closed down. Is the Minister therefore aware that all that my constituents have left is a big environmentally unacceptable hole in the ground?

Mr. Baldry: The planning guidelines aim to strike a balance between the economic importance of opencast coal —we should not underestimate the fact that it does have an economic value—and protection of the environment in a way that is fully compatible with the principles of sustainable development. In all these matters, balance is important.

Mr. Michie: I do not think that any of my colleagues are happy with the replies. The planning guidelines contain a loophole so large that one could put an earthmover through it. There is more than planning at stake. Will the Minister make it clear whether the demise of planning control over opencast mining has something to do with the closure of deep-mined pits?

Mr. Baldry: The hon. Gentleman has clearly not listened to either of the answers that I have given. In my role as Minister responsible for planning, I am determined to ensure that the acceptability or otherwise of individual proposals for opencast coal mining depends on the balance

between environmental impact and economic gain. That balance has to be struck, irrespective of the ownership of the coal or who is involved.

Mr. O'Brien: Why, having made a decision on the Birch Coppice opencast application on 2 August 1993, did the Minister set it aside on 25 February 1994, thereby blighting thousands of homes in north Warwickshire? When will a further decision be made? Will he now offer an apology to the people of north Warwickshire for the long delay? Is it not the case that, if he had displayed such manifest incompetence in a proper job in the private or public sector, he would long ago have been dismissed?

Mr. Baldry: That question shows manifest ignorance of the whole planning system. The hon. Gentleman must surely appreciate the fact that all planning decisions are subject to the review of the High Court. Ultimately, it is the High Court which determines whether a planning decision is valid. Although I appreciate the concerns felt by the hon. Gentleman's constituents, he knows, but did not seek to make it clear to the House, that the High Court has still to determine the planning application in the matter to which he referred. I am sure that he will appreciate that I am unable to comment further at the moment.

Points of Order

Mr. Dafydd Wigley: On a point of order, Madam Speaker.

Madam Speaker: Before I hear the point of order, may I say that I am very disappointed that the House did not make the progress that it should have made at Question Time. Questions have been too long and, although there have been one or two very brisk answers from a particular Minister—for which I award him an accolade—answers, too, have often been too long. I hope that things will improve tomorrow and in the coming days.

Mr. Wigley: You may be aware, Madam Speaker, that following reports in the press in Wales today under the headline "Redwood Plan in Tatters", referring to what is called
the humiliating defeat of the Secretary of State's plan which blew a hole through his blueprint for counties in Wales",
comments have been made by the Welsh Office about the future of the Local Government (Wales) Bill which have not been made in the House. The position is exacerbated by virtue of the fact that the Secretary of State for Wales is not a member of the Standing Committee dealing with the Bill. In these circumstances, would it be possible for the Secretary of State for Wales to make a statement in the Chamber on what is going to happen to the Bill, in view of the uncertainty that it is causing for local authorities in Wales?

Madam Speaker: I have not seen the report to which the hon. Gentleman refers, but he is clearly referring to decisions, activities and debates that took place in the Standing Committee. I have not so far been informed by the Secretary of State that he is seeking to make a statement to the House.

Mr. Andrew Faulds: Further to what you said, Madam Speaker, about the prolongation of Question Time, would it not be better were we to revert to


the old custom—and only very few of us here remember it —that nobody bothered to thank you for allowing them to catch your eye? This is a new development. The new calibre, lower-quality Members now think that somehow or other they play to your favour by saying "Thank you." Will you tell them that there is no need for that; you are simply doing your job?

Madam Speaker: I wish that all hon. Members were as courteous to each other as the hon. Gentleman seems to think that they are to me. They are not always very courteous to me, and I value a little "Thank you" sometimes. I now call Mr. Hain.

Regulators of Privatised Utilities

Mr. Peter Hain: A big thank you, Madam Speaker.
I beg to move,
That leave be given to bring in a Bill to reform the accountability and other objectives of the privatised utility regulators.
Without any serious debate, the regulation of the privatised utilities has been hived off to autocratic unaccountable directors general. The invisible hand of Ofman the regulator now guides policy for every light switched on, every bath run and every telephone call made. Regulators are independent and all-powerful, and they have extensive discretion, which has often been exercised in a highly personalised fashion.
Oftel, Ofgas, Ofwat and OFFER cover vital services. Telecommunications, gas water and electricity affect major areas of public policy and every citizen in the land.
However, the regulators were largely afterthoughts. Regulation has evolved in an ad hoc fashion, becoming complex, over-technical, rambling and fundamentally flawed. The main beneficiaries are shareholders, whose dividends have soared—dividends had increased by 85 per cent. for water by 1992, and by a massive 63 per cent. in the first year of electricity privatisation. Industry chiefs have also enjoyed a pay and shares bonanza.
By contrast, job losses in the privatised utilities will soon total a staggering 200,000. The National Consumer Council reports at best a mixed record on prices, with anomalies such as a £9,000 charge for a 4 ft water connection to a residential home in my constituency of Neath.
The right-wing assumption that individual shareholder interest necessarily equates with the public interest is nonsense. Individual shareholder or consumer interests, compartmentalised from each other, do not inevitably aggregate into the general public interest. Indeed, selfishly pursued with the support of the regulator, they often thwart achievement of the general interest in such matters as the ability of strategic national companies to compete in world markets, environmental protection and the preservation of precious natural resources.
In 1993 the electricity regulator—a public servant, not an elected representative—insisted that forcing the electricity generators to maintain existing coal volumes would infringe competition rules. He thereby vetoed an alternative energy policy, which led to the closing of dozens of pits. That public servant's encouragement of the dash for gas for electricity power station base load is depleting North sea oil reserves by more than 15 years' usage, and causing a most inefficient use of a critical fuel. Coal is sentenced to death, while coal imports soar and nuclear power has a £1 billion-plus subsidy.
The driving objective of the regulators to promote competition almost at all costs invites foreign companies to enter the United Kingdom market on advantageous terms, while British companies are barred from reciprocal rights abroad. That is most striking in gas and telecommunications, where American-owned television companies are capturing important local markets. British Telecom cannot enter the United States market on equivalent terms, and is further penalised by being barred from offering broadcast services, such as cable television, over its lines.
Britain's industrial interests in that vital area of information technology are being undermined, as BT is forced to concentrate on pigmy competition in its backyard at the expense of international competition, where we are now threatened with an American takeover.
Competition dogma is also tending to force the privatised utilities to concentrate on the most lucrative, fastest growing markets, where competition from new entrants is fiercest, at the expense of low-income communities. That so-called "cherry picking" means that the most profitable users get the cheapest and most sophisticated services. Telecommunications in the City of London is a good example. By contrast, there is social dumping of rural areas and poor inner city areas, where competition is limited or non-existent. Installation charges for telephones are high, well beyond the reach of many people on low incomes.
Water disconnections trebled after privatisation, and charges soared almost as high as executive salaries and perks in the water industry. Low-income households face discrimination, with higher deposits and pre-payment systems.
Privatised British Gas is refusing to extend the main supply an extra few miles to supply villagers—in Neath's Dulais and Swansea valleys, for example. The new competition regime will also increase gas charges for the poor and reduce charges, relatively, for the rich, while gas showrooms are closed.
Competition is not value free, nor is regulation a value-free, non-political exercise carried out in an objective, technical fashion. Each regulator has enormous discretion to determine public policy as he sees fit for his own industry without regard to the knock-on effect. We need to put democratic politics back in charge. The Government should take a small stake in each industry and should appoint a Government director, thus securing considerable influence at minimal cost.
New regulators should be appointed with different objectives to ensure that policies to advance strategic national and social interests always take precedence over promoting domestic competition or shareholders' profits. The regulators should have new performance targets, such as universal tariffs, protection of supplies to the elderly and the disabled, research and development, levels of investment and international competition. Those, rather than competition for its own sake, should be the driving objectives of the regulators.
Democratic accountability could also be improved by establishing a parliamentary Select Committee to scrutinise the utilities, with annual debates on the Floor of the House. A utilities commission should be established to bring the regulators under one roof. That would promote policy consistency between the different regulators housed within it. We do not see that at the moment, especially in gas and electricity.
The commission would be a quasi-judicial body, akin to the Monopolies and Mergers Commission, but with powers of scrutiny and subpoena similar to those of a Select Committee. It could be governed by a board of representatives from all sectors—from consumers, senior managers, trade unions, shareholders and academics appointed by the Secretary of State.
Enabling the different regulators to share common resources would also bring economies. Each regulator would still be proactive and would still have considerable operational autonomy, but each would be supervised by the


commission's board. It would have an advisory role for Government on policy and strategy, and it would help to resolve disputes between the regulators in industries. Such disputes have sometimes dragged on for months.
There must be transparency in the regulators' decisions and the regulators' right to silence should be abolished. They should be required to explain the reasons for their decisions, either publicly or at least privately to the industries concerned. It would also make sense for the regulators to be merged and reorganised so that we had one regulator covering communications; telecommunications and broadcasting are increasingly converging. There should be one regulator for energy, including coal, one regulator for transport and one regulator for water.
The customer is crying out for change and the companies themselves want consistency. Opinion-formers and utilities experts, and even some of the regulators themselves, are casting around for alternatives. The Bill would introduce regulation for the common good.

Question put and agreed to.

Bill ordered to be brought in by Mr. Peter Hain, Mr. Nick Ainger, Mr. Roger Berry, Mrs. Anne Campbell, Mr. Michael Connarty, Ms Jean Corston, Mr. John Denham, Mr. Neil Gerrard, Ms Kate Hoey, Mr. Jon Owen Jones, Mr. Rhodri Morgan and Mr. Ken Purchase.

REGULATORS OF PRIVATISED UTILITIES

Mr. Peter Hain accordingly presented a Bill to reform the accountability and other objectives of the privatised utility regulators: And the same was read the First time; and ordered to be read a Second time upon Friday 17 June, and to be printed. [Bill 95.]

Orders of the Day — Finance Bill

2ND ALLOTTED DAY

Not amended (in the Committee) and as amended (in the Standing Committee), further considered.

Schedule 4

PENALTIES FOR STATUTORY CONTRAVENTIONS

The Paymaster General (Sir John Cope): I beg to move amendment No. 27, in page 236, line 22, leave out '(1)'.

Madam Speaker: With this it will be convenient also to discuss Government amendment No. 26.

Sir John Cope: Of the two amendments, amendment No. 26 is the important one. It takes up a point that arose in Committee which is to do with reasonable excuse. The amendment does not go quite as far as amendment No. 58 sought to do in Committee, but it takes up the main point in that it allows a second or subsequent reasonable excuse to count for the purposes of clause 10 and the schedule. Amendment No. 27 is a consequential amendment.

Mr. Andrew Smith: We welcome the Government's acceptance, in the words of the Paymaster General—at least, almost total acceptance—of the arguments by myself and my hon. Friends in Committee. In Committee, my hon. Friend the Member for Cambridge (Mrs. Campbell) ably moved the amendment, which the Government have partly accepted after a tied vote in Committee.
The Bill as it stands would have eliminated the opportunity for appellants to plead after one reasonable excuse had expired with a new, second reasonable excuse for the conduct on which they were appealing to commissioners. It seems fully in accordance with natural justice that appellants should have the opportunity to plead a further reasonable excuse in cases of illness and other examples, which were explored in Committee. It makes good sense for appellants and we therefore welcome the Government amendment—if only they took as much notice of all the arguments that we put in Committee.

Amendment agreed to.

Clause 10

EXCEPTIONS TO LIABILITY UNDER SECTION 9

Amendment made: No. 26, in page 7, line 30, leave out from 'continuation' to end of line 33.—[Sir John Cope.]

Clause 22

RECORDS AND RULES OF EVIDENCE

Amendments made: No. 31, in page 18, line 26, leave out from 'sections' to end of line 27 and insert

'5 and 6 of the Civil Evidence (Scotland) Act 1988;'.

No. 32, in page 18, line 28, leave out from 'with' to end of line 31 and insert


'Schedule 3 to the Prisoners and Criminal Proceedings (Scotland) Act 1993;'.

No. 33, in page 18, line 39, leave out subsection (3). —[Sir John Cope.]

Clause 30

THE RATE OF DUTY

Sir John Cope: I beg to move amendment No. 28, in page 23, line 44, leave out '61 degrees' and insert '81 degrees'.
In Committee, we had a discussion about the application of the lower rate of air passenger duty, which applies, if I may express it in shorthand, to the European Community. The House will be aware that the hope is that the European Community will have more members at the end of year. The amendment alters the lines of latitude in the Bill and hence, automatically, when the expected new members join the Community, flights to those countries will at that point, though not before, become entitled to the lower rate applicable to the Community.
The capitals of the three countries concerned, Norway, Sweden and Finland—Austria is not affected by the amendment as it is already within the lines of latitude and longitude laid down—are all within the existing area. However, some northerly latitudes of areas in those countries do not fall within the lines but will be automatically included as a result of the amendment.

Mr. Andrew Smith: Will the right hon. Gentleman describe to the House the area which will be delineated by the new line of 81 deg north?

Sir John Cope: To all intents and purposes, the new line goes right up to the Arctic. If the hon. Gentleman looks at a map, he will see that it goes very far north and therefore takes in all the northerly parts of the three countries that I mentioned.
We had some discussion as result of an intervention in Committee by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) about the Faeroe Islands. It would also come into the definition because it falls within the new lines of latitude, as it would have done if we had accepted the right hon. Gentleman's amendment in Committee.

Mr. James Wallace: The amendment is welcome, and its significance should not be lost. In Committee, my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) tabled an amendment, which in retrospect seems modest, to increase the latitude from 61 deg to 63 deg. Instead of an increase of 2 deg, we have had a tenfold improvement. It is a concession that I do not think that the Government have ever given the Liberal Democrats before. I hope that it is a harbinger of good for the future.
Looking at a limited map, the new line takes us into the realms of Franz Josef Land. It would be interesting if the Paymaster General would tell us how many flights there are from the United Kingdom to Franz Josef Land, to which the new concession will apply.

Mr. Geoffrey Hoon: Would it not be more sensible to confine these areas in terms of the status of the countries concerned rather than the rather difficult geographical approach that the Government have adopted? One of the four applicants to the European Union may well decide not to join. If that happens, we shall be left with this

curious geographical description instead of referring to countries according to whether they are members of the European Union, or perhaps the European economic area. The provision would be clearer and far more sensible if it were defined in those terms.

Mr. Nigel Forman: I shall make a brief intervention in the form of a question. Does the definition include the whole of Norwegian territory up to and beyond the Arctic circle? We very much hope that Norway and the other countries that my right hon. Friend mentioned will come into the European Union. Does the definition include such exotic places as Spitzbergen and Svalbard?

Mr. Andrew Smith: I echo what was said by my hon. Friend the Member for Ashfield (Mr. Hoon). It would be more sensible if the Government had defined these areas in terms of the status of the states rather than by lines of longitude and latitude. Apart from anything else, such a definition would have given us great scope for successive amendments in Committee had the circumstances been such that we felt that we needed to engage in prolonged discussion. Serious points were made, however, about the status of parts of the European Community. As the hon. Member for Carshalton and Wallington (Mr. Forman) said, it is pertinent to ask whether the whole of Spitzbergen falls within the defined area.
The Paymaster General claims that all becomes clear when we study an atlas. I made several forays to the Library to find an atlas that was not distorted—it must be remembered that the area in question is at the top of most projections—to find exactly where the line fell. The definition appears to include Spitzbergen. It would be helpful to have the right hon. Gentleman's confirmation that that is so.
I cannot help feeling that it would have been more sensible, as my hon. Friend the Member for Ashfield said, to define in terms of the status of the relevant states, not least because in due course, as the European Union expands, it will be necessary for the Government at some stage further to amend the provision. When that happens, they may wish that they had adopted a more sensible course at this stage. As has been said, however, the extension is in itself welcome.

Sir John Cope: The hon. Member for Ashfield (Mr. Hoon) said that we should have defined by status. In fact, the primary distinction is by status. Latitude and longitude is a subsidiary or secondary delineation. I am sure that the hon. Gentleman recalls our discussions in Committee. It was explained at that stage that some of the French overseas territories, without the definition that we have adopted, would be included in the status decision. They are a long way away from the area we are discussing and in anyone's book long-haul flights are needed to reach them. We thought it right, therefore, that they should not fall within the reduced rate.
I think I am right in saying that all the places mentioned during the debate fall between the latitude and longitude described in the amendment.

Mr. Hoon: The right hon. Gentleman referred to French overseas territories. As I understand French constitutional law, France regards such territories as integral parts of what they define as France. In effect, are not the Government seeking to determine for the French what will


be within the European Union and what will be without it? If the same argument were advanced by a French Government in respect of what the United Kingdom was defined as constitutionally, would not the Paymaster General and his colleagues object to such an approach?

Sir John Cope: To a degree, we had this discussion in Committee. My answer has not changed. I cannot speculate about what a French Government's attitude would be in such a highly hypothetical situation. There are not any such departments, if that is the right word. We have been told that constitutionally we are entirely in order in bringing in the definition. The definition seems to be wise from the point of view of this particular duty.

Amendment agreed to.

Clause 38

ACCOUNTING FOR AND PAYMENT OF DUTY

Sir John Cope: I beg to move amendment No. 29, in page 28, line 28, leave out from beginning to 'at' in line 29 and insert—
'to make returns in respect of duty—

(i) by reference to such periods as may be prescribed or as may be allowed by the Commissioners, in relation to a particular operator, in accordance with regulations, and
(ii)'.

Madam Speaker: With this, it will be convenient also to discuss Government amendment No. 30.

Sir John Cope: The amendment relates to returns under the air passenger duty, and has two purposes. It removes doubt about the original wording of the Bill, and allows the Commissioners of Customs and Excise to make regulations to require aircraft operators to make returns for accounting periods where no duty is due. There is only a doubt but, nevertheless, it is wise to remove it.
The point about a nil return is that it can be less trouble both to the airline operator—if it happens to have a period in which there is no duty—and to Customs and Excise because it will be saved the trouble of wondering where a return has got to, which it was otherwise expecting. It will save Customs and Excise from having to chase the airline operator, and the airline operator having then to confirm back again. It will be more convenient if nil returns are provided for. There was always the intention to do that but, as I said, there has been some doubt about the original wording of the Bill which the amendment clears up.
The second aim of the amendment is to allow Customs and Excise to have flexibility over the accounting periods for returns in order to help the airline industry. The standard accounting period ends on the last day of each month, and that will be prescribed in the regulations. Undoubtedly, there will be some aircraft operators who run an accounting system that ends on a different day of the month. It would be convenient to allow Customs and Excise to accept a different accounting period of that sort and, indeed, that is what the second part of the amendment does.

Mr. Wallace: We certainly have no intention of opposing the amendment, but we shall make some observations about it. The amendment has been presented

to the House on the justification that it will be convenient for aircraft operators, and especially Her Majesty's Customs and Excise.
It is a matter for comment that, while the Government are going out of their way to provide for the convenience of Customs and Excise and airline operators, no concession has been given at any stage for the convenience of those who live in remote island communities and who will be penalised by the measure. I shall not rehearse all the arguments that were made in Committee—they were made in Committee on the Floor of the House and upstairs—and to the Minister.
With regard to the convenience of airline operators, the Minister introduced a new clause to facilitate, as it were, not a guess but a detailed passenger-by-passenger calculation as a means of calculating the rough sum which would be allowed. I know that the hon. Member for Western Isles (Mr. Macdonald) asked whether that might take account of journeys that either begin or end in our island communities.
The Minister is well aware of the importance of the issue to many communities where an airline is an essential service, rather than a form of convenience or a luxury. I therefore hope, even at this late stage, that the Minister is prepared to say something which might give reassurance. He suggested in Committee that the matter might be better dealt with by a subsidy through the Scottish Office than by making further exemptions to the tax which we are now debating. As that subsidy, under the Highlands and Islands Air Services (Scotland) Act 1980, requires the consent of the Treasury, perhaps the right hon. Gentleman will state what level of consent the Treasury is prepared to make in this case.

4 pm

Sir Peter Fry: The amendment, and the clause to which it relates, is concerned with the accounting for and payment of the air passenger duty. I find the amendment insufficient and inadequate because it expects the aircraft operators—in other words, the airlines —to enter into the expense of keeping accounts and making returns which most other companies do not have to do.
This part of the Bill imposes upon airlines a duty which they cannot avoid, yet it takes no account whatsoever of the special position of airlines. I understand that the duty is intended entirely to be extra revenue for the Treasury, yet it does not in any way take into account the peculiar position of airlines, particularly with regard to the additional expenses for security which they have at the moment.
I will not go into great detail, you will be delighted to know, Madam Speaker. It is estimated that the six main airports in this country will have to pay about £134 million to improve the searching of hold baggage. If we add to that the necessary research and development, the figure comes to about £200 million a year.
It may be of interest to my right hon. Friend that in 1989, when the Transport Select Committee looked at whether there should be a special duty on airlines, the airline operators asked for a special security tax so that they would be assisted in the essential job of protecting people who fly within and from this country. The Select Committee agreed entirely with the airline operators. The


Committee pointed out that previously there had been a tax similar to the one which the Government are now proposing, but it was related purely to security purposes.
At that time, the Department of Transport disagreed. It said, first, that there was no shortage of money to cover the problem of airport security and, secondly, that it would be far too expensive to collect such a charge. That view seems hollow today. We now appear to be expecting airlines to pay for security without any assistance from the new duty at a time when most airlines have been losing money throughout the world. Yet we are expecting them to invest more and more in the means of protecting the travelling public. The objection that it would be impossible or too expensive to collect such a tax has now been totally blown away by the Government's proposals in the Bill.
The Government have lost a great opportunity. They could have brought about a situation whereby part of the tax or duty, or a slight addition to it, could have covered the enormous cost of protecting our citizens and those of other countries who fly to and from the United Kingdom. It is estimated that only £2 would cover that.
I believe that the duty would have been better accepted by the travelling public if they felt that some of the money was going to protect them as they fly around the world. It is a lost opportunity, but I hope that the Government will not close their minds totally to looking at the increased cost of security in airports and on aircraft which fly from here. They should not just regard the duty as another way of squeezing more taxation out of the British public. If they did consider the costs, they would find that the measure would be far more acceptable than it has been until now.

Mr. Andrew Smith: The hon. Member for Wellingborough (Mr. Fry) made some forceful and relevant points, but I fear that he will be disappointed if he expects the Government to do other than simply squeeze every penny that they can out of this measure to make up the massive fiscal deficit—albeit a deficit of £46 billion now, rather than the £50 billion that they forecast—that has resulted directly from their own economic incompetence.
We, too, will pay close attention to what the Government say and do in the future about airline and airport security. We remain very concerned about the impact of the duty on ordinary travellers—especially those travelling to the islands, to whom the hon. Member for Orkney and Shetland (Mr. Wallace) referred. As he acknowledged, my hon. Friends—notably the hon. Member for Western Isles (Mr. Macdonald)—have fought long and hard alongside him for the interests of islanders in this context. The Government's response, however, has been wholly inadequate and insensitive to the needs of, in particular, communities that depend on air services and the lifeline that they provide.
I understand that it is convenient for Customs and Excise for operators to be required to submit nil returns, perhaps year after year; but it is stretching the truth to suggest that it would be convenient for operators as well. The Government keep on about deregulation and the action that they are taking to remove burdens from business, but requiring firms to submit a succession of nil returns does not strike me as winning the battle against unnecessary bureaucracy.
There is some benefit in making accounting periods flexible. It clearly makes sense to ensure the closest possible correspondence between the periods used for firms' own accounting purposes and those that are

acceptable for the purposes of Customs and Excise. None the less, this is still a bad tax that has been badly introduced, and we fear that it will have damaging effects, especially in the islands.

Sir John Cope: It is not a question of nil returns year after year, as the hon. Member for Oxford, East (Mr. Smith) suggested. Our amendment is intended to deal only with cases in which there are occasional nil returns from an airline which would normally provide ordinary returns and, indeed, pay the duty.

Mr. Andrew Smith: Is the Paymaster General saying that, after a certain number of nil returns, an operator would no longer be obliged to make returns?

Sir John Cope: If the operator is not liable for the duty, he will fall out of the registration requirements altogether, under clause 33.
Some airlines operate for only part of the year. The amendment would enable Customs and Excise to make a regulation allowing operators which did not expect to pay duty for a number of successive months, on request, to submit a single return covering the period concerned.
The hon. Member for Orkney and Shetland (Mr. Wallace) ingeniously used the amendment to refer to discussions that we have had before about the highlands and islands, and in particular to the question of subsidies, which we have also mentioned before. As he is doubtless aware, my right hon. Friend the Secretary of State for Scotland has announced increased funds for Western Isles council, so that it can increase the subsidy to the airline that operates on the inter-island route within the Western Isles. He would not have been able to do that without Treasury approval. It will mean that prices can be reduced, so that the passenger will pay no more as a result of the air passenger duty. As for the future, I can only say that we shall consider any suggestions that are made.
My hon. Friend the Member for Wellingborough (Mr. Fry) referred to the expenses involved in airport and airline security. I understand his views, but, as my right hon. and learned Friend the Chancellor of the Exchequer made clear in his Budget speech, we are engaged in what is essentially a revenue-raising operation. As he knows, we have always done our best to avoid hypothecation of revenue to particular items of expenditure. While I have some sympathy for what he said, I cannot go along with his suggestion. As has been made clear from the start, it is a revenue-raising duty and that is the basis on which we recommend it.

Mr. Wallace: What the Minister says about the Western Isles covers only internal flights and brings them into line with Orkney and Shetland, where internal flights are already covered by the exemption related to aircraft size. In Committee, the Minister raised the issue of subsidy and returned with that as a possible solution, but that was in the context of flights from the Scottish mainland to the islands. Is the Treasury willing to grant consent to the Secretary of State for Scotland to allow subsidy under the Act to which I have referred for mainland-island flights?

Sir John Cope: I am happy to repeat that we will look at suggestions. However, I will not commit myself or the Government in advance to suggestions that have not, as far as I am aware, yet been put to us—or not to me at any rate.

Amendment agreed to.

Clause 43

INTERPRETATION

Amendment made: No. 30, in page 30, line 42, after 'prescribed', insert 'or allowed'.

Clause 54

ACCOUNTING FOR TAX AND TIME FOR PAYMENT

Sir John Cope: I beg to move amendment No. 36, in page 35, line 14, leave out
'account for tax by making'
and insert 'make'.
We now move to the insurance premium tax and to a point that is similar to what was covered in one of the amendments in the previous group. It covers the point about nil returns. As I said about the previous amendment, we believe that nil returns for a month or occasional periods could result in time being wasted not only by Customs and Excise in checking whether a return should have been submitted, but by the insurers involved who might receive requests from Customs and Excise and control visits to verify the reason for the absence of a return even though it would have been a nil return. It makes it clear that Customs and Excise regulations can require a nil return from an insurance company which in a particular period has nothing to return.

Mr. Alistair Darling: I understand the Paymaster General's point. It is ironic that, although the Government claim that they want to reduce red tape imposed on industry, the requirement for a nil return will be expensive if only because companies have to check whether such a return is appropriate. Obviously, we do not oppose the amendment, but, as we said in Committee, the cost of collecting and implementing the tax will be substantial and the tax will have to be met by the people who pay the premiums—members of the public. The Government should not try to give the impression that the cost of implementing the tax will be minimal because it will be substantial. In time, it may bear quite heavily on the industry itself.

Sir John Cope: As I think the hon. Gentleman is aware, we have done our best to design the mechanics of the tax and its operation in such a way as to minimise the burdens as far as possible.
There is another aspect to the amendment which I should have mentioned earlier. Some insurers are likely to have accounting periods in which no tax is due, but some are likely to have occasional accounting periods in which their tax credit claimed in respect of refunded premiums exceeds their tax liabilities in that period. Without an amendment of this kind, they would be unable to claim the balance of the money due to them. That is a further recommendation for the amendment.

Amendment agreed to.

Clause 59

REVIEW OF COMMISSIONERS' DECISIONS

Sir John Cope: I beg to move amendment No. 37, in page 41, line 23, at end insert—
'(da) any refusal of an application under section 63 below;'.
In Committee we tabled an amendment to permit the group registration of insurance companies that were in

groups. The amendment allows review or appeal of decisions by Customs and Excise on group registration. I commend it to the House.

Amendment agreed to.

Schedule 7

INSURANCE PREMIUM TAX

Amendment made: No. 34, in page 260, line 5, leave out sub-paragraph (7).—[Sir John Cope.]

Clause 68

SPECIAL ACCOUNTING SCHEMES

Sir John Cope: I beg to move amendment No. 38, in page 52, line 9, at end insert—
`( ) The reference in subsection (3)(a) above to a premium under a taxable insurance contract includes a reference to anything that, although not actually received by or on behalf of the insurer, would be such a premium if it were so received.'.
Those hon. Members who served on the Committee and those people who have read the Committee proceedings will recall that we have introduced an arrangement for a special accounting scheme which allows the insurance premium tax to be accounted for when the premium is written rather than when the premium is received by the insurer or by an agent on his behalf. The amendment enables the date of the writing of a premium to be the tax point if that happens before the premium is received.
In the explanation that I gave in Committee of what was then new clause 15, about the advantages and disadvantages to an insurance company of having a premium written arrangement, that was assumed, but the amendment confirms that it will be possible for the regulations to make such an arrangement. It would be confusing to an insurance company to have a written premium or cash, whichever was the later, in the case of a specific transaction. It is obviously better for the company to go wholly on to the written premium basis from every point of view. Without the amendment, that might not be possible. It clears up a doubt.

Mr. Darling: This is technical stuff, but it is important. I understand the Paymaster General's argument. Of course all members of the Committee welcomed the Government's agreement to allow the tax to be discharged on the basis of the date on which premiums were written.
However, if I read amendment No. 38 correctly, it could also cover a situation in which tax would be payable whether or not the premium was ever received. I simply want to check with the Paymaster General whether that is intended. As I understand it, the tax point is the date on which the premium is written, but the phrasing of the amendment suggests that if the premium is written but no cash is ever received, none the less tax would be payable on the unpaid premium. Am I right in assuming that?

Sir John Cope: No; I am glad to be able to reassure the hon. Gentleman. If tax is accounted for on a premium written basis and premium is not received by the insurer or on his behalf, the insurer can claim credit for the tax when he makes the adjusting entry to cancel the premium from his books, and it then comes off his insurance premium tax,


for that accounting period. It may be a later accounting period; in some cases it will be in the same accounting period; but he does not eventually suffer the tax.

Mr. Darling: Just to be sure, it means that the tax is payable at the tax point, if at a later stage, rather similar to the case in which VAT is not recovered—a credit can then be claimed by the company if it turns out that it has to write off the premium.

Sir John Cope: That is correct.

Amendment agreed to.

Clause 70

INTERPRETATION: TAXABLE INSURANCE CONTRACTS

Mr. Darling: I beg to move amendment No. 43, in page 52, line 35, leave out from beginning to end of line 44 on page 53 and insert
'A taxable insurance contract is any insurance contract that may be prescribed.'.

Madam Speaker: I understand that with this it will be convenient to discuss the following amendments: No. 40, in page 52, line 44, at end insert—
'(ba) the contract relates only to a motor vehicle where the conditions mentioned in subsection (2A) below are satisfied;'.
No. 41, in page 53, line 22, at end insert—


'(2A) The conditions referred to in subsection (2)(ba) above are that—

(a) the vehicle is used, or intended for use, by a handicapped person in receipt of a disability living allowance by virtue of entitlement to the mobility component or of a mobility supplement,
(b) the insured lets such vehicles on hire to such persons in the course of a business consisting predominantly of the provision of motor vehicles to such persons, and
(c) the insured does not in the course of the business let such vehicles on hire to such persons on terms other than qualifying terms.

(2B) For the purposes of subsection (2A)(c) above a vehicle is let on qualifying terms to a person (the lessee) if the consideration for the letting consists wholly or partly of sums paid to the insured by—

(a) the Department of Social Security,
(b) the Department of Health and Social Services for Northern Ireland, or
(c) the Ministry of Defence,

on behalf of the lessee in respect of the disability living allowance or mobility supplement to which the lessee is entitled.'.


No. 48, in page 53, line 22, at end insert—
'(1) the contract is Creditor Insurance, being a contract which provides specified benefits to protect income or financial commitments in the event of persons becoming incapacitated in consequence of sustaining injury as a result of an accident or sickness or infirmity or becoming unemployed.'.
No. 42, in page 53, line 41, at end insert—
'(7A) For the purposes of this section—

(a) "handicapped" means chronically sick or disabled;
(b) "disability living allowance" means a disability living allowance within the meaning of section 71 of the Social Security Contributions and Benefits Act 1992 or section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992;
(c) "mobility supplement" means a mobility supplement within the meaning of article 26A of the Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983, article 25A of the Personal Injuries (Civilians) Scheme 1983, article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) Order 1985 or article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) (Northern Ireland) Order 1985.'.

Mr. Darling: In Committee, we had quite a long debate on what constituted a taxable insurance contract, and it was the Opposition's view, and I think the view of one or two Conservative Members, that the Government should specify what an insurance contract was. The Paymaster General will recall that we cited the example of an Automobile Association or Royal Automobile Club premium, where the premium payable covered not only insurance services but the receipt of maps and other benefits. Equally, we discussed the case of someone buying a car who might receive a warranty on certain parts of that car, if not the car itself, and the question arose whether a warranty was a contract of insurance.
The Government's position, as I understand it, is that, although they could not describe an insurance contract, rather like an elephant, they knew one when they saw one. I do not want to misrepresent the Government's position, but, as I understand it, that is what it is. The Paymaster General said a number of times that, although a contract of insurance was defined nowhere, it was well settled. He said that he wanted to rely
on definitions that are tried and trusted"—[Official Report, Standing Committee A, 8 March 1994; c. 570.]
Given that the tax is being levied at 2.5 per cent., I am prepared to accept that at this stage there is unlikely to be widespread avoidance or evasion of it. But many people believe that 2.5 per cent. is simply the start and that successive Chancellors may seek to increase it. Many people may then try to avoid the tax by the granting of warranties rather than contracts of insurance.
As I said in Committee, we could rely on clause 51, which makes it clear that the only person who can charge insurance is the insurer, and an insurer is defined in the Insurance Companies Act 1982. So the Government may be able to meet our objection by saying that the problem would not arise because insurance premium tax is payable by an insurer under clause 51.
I do not expect the Government to accept the amendment, which has been tabled simply to put down a marker for the future that the Government should define a contract of insurance. It is not just us who say that. Various professional bodies as well as people in the industry have suggested that it might be useful if, in a future Finance Bill, the Government were to spell out the meaning of a contract of insurance. It is not fanciful to think that, in future, individuals may want to get round paying motor insurance —for example, by covering through warranty certain parts of a car and even, ultimately, the theft of a car.
This probing amendment simply puts down a marker for the future. If, as I suspect, the Minister urges the House to reject it, I hope that he will undertake to consider the matter and table an amendment in a future Finance Bill or some other appropriate Bill.
It may be appropriate to say a word about the amendments tabled by the hon. Member for Exeter (Sir J. Hannam). I understand his intention to exempt certain vehicles used by handicapped people. His interest in the matter is well known and I appreciate what he is trying to do. I imagine that he, too, suspects that insurance premium tax will not remain at 2.5 per cent. and is concerned that disabled people, who are already hard pressed, will face increasing bills as a result of insurance premium tax. I doubt whether he will have much joy with the Government, although he may know something that I do not know, but we wish him all the best in moving his amendments.

Sir John Hannam: Amendments Nos. 40, 41 and 42 in my name and that of my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) seek to exempt from the new insurance premium tax a specific and important group of disabled drivers who lease their adapted vehicles through the excellent charity, Motability.
I need not remind hon. Members of the importance of the Motability organisation. Most of us have, at some time, taken part in ceremonies to hand over the keys of vehicles provided by Motability to happy disabled recipients.
Originally, the Government provided the much-criticised invalid trike to disabled drivers. That was withdrawn in 1976 and the mobility allowance was introduced. Motability was set up as a charitable organisation—it is now a royal charity—to help those in receipt of mobility allowance to obtain vehicles of their own to replace the trikes.
Four group schemes are run by Motability: first, for those who lease a new car from Motability; secondly, for those who buy a new vehicle on hire purchase; thirdly, for those who buy a used car on hire purchase; and, fourthly, for those who buy a wheelchair on hire purchase. Those with hire purchase agreements make their own insurance arrangements for their vehicles. But about 160,000 disabled drivers who lease cars are covered by Motability's block insurance policy.
The cost of the leasing and the vehicle insurance is covered by the mobility component of the allowance paid by the Government—the disability living allowance. It would be extremely hard for that group of disabled drivers to pay for new insurance taxes. Therefore, Motability is seeking to work out with my right hon. Friend the Paymaster General some way of exempting that group from the tax. The amendment will achieve that.
In addition to that group of 160,000, there is a small category of 1,500 severely disabled drivers who, although they purchase their vehicles through the Motability hire purchase scheme, are so severely handicapped that their cars need substantial and expensive adaptations. Their vehicles are often larger and non-standard. We often see the vans and trucks that are adapted for them.
The distinct group of about 1,500 severely disabled drivers is catered for by Motability, through a special Motability equipment fund, which provides special grants to assist with the high cost of adaptation. Motability is desperately anxious that the needs of that small group should be exempted from the tax. It has every hope that my right hon. Friend can find a way of achieving that. Special Treasury arrangements would be needed to ring-fence the group. Motability intend to assist by rearranging that category of insurance under its own banner to help facilitate the ring-fence provision.
I thank Lord Sterling and Treasury Ministers for the help that they have given Motability over this serious problem. I hope that the amendments will be accepted by my right hon. Friend.

Mr. Dafydd Wigley: I am pleased to support the amendments of the hon. Member for Exeter (Sir J. Hannam). We all come across numerous constituents who depend on vehicles that have been provided under the Motability scheme. Over the past week I have been dealing with the case of a considerably disabled constituent. The significant costs of adaptation involved in that case are relevant to the comments of the hon. Member for Exeter.
Often the cost of a disability is compounded by the disabled person's mobility requirements. Any increase in charges that might arise as a result of the provisions in this year's Finance Bill and which had an adverse effect on that group of people would be highly regrettable. It would hit people who cannot afford to pay. The Government would be under significant pressure to increase the level of mobility allowance payable under the disability living allowance scheme to compensate. If they did so, they would encounter problems about where to draw the line.
It would be simpler and more straightforward for the Government to accept the amendments or table amendments of their own exempting people who would be hit by the tax. We could all give examples that would graphically bring home the needs of people for mobility and their dependence on the Motability scheme. Motability faces increasing costs, and those who depend on the scheme may be unable to obtain everything that they want due to the cost. Every additional £1 of pressure is unwanted and should be avoided.
No doubt the Minister will have sympathy with that category of people, and I hope that he will find it possible to help them. The measure will have only a limited effect on the revenue raised by the Treasury. I imagine that it will be a relatively small amount relative to the global sums that the Treasury wants to raise through the tax changes. I hope that the Minister will be able to find a way of accepting the amendments or come forward with another positive proposal that has the same objective. I am pleased to support the amendments of the hon. Member for Exeter.

Mr. Edward Leigh: I declare an interest as I am a consultant to Pinnacle Insurance plc. My amendment is tabled to clause 70(2), which lists the types of insurance cover that are exempt from insurance premium tax. I wish to add a further exemption to the list—creditor insurance.
Creditor insurance is designed to protect income and repayment commitments such as mortgages, loans and credit cards against death, disability and unemployment. For example, if an individual purchased a car using a loan, the credit insurance policy would make the monthly loan repayments for him if he became unemployed or was disabled as a result of an accident or sickness. In the event of death, the loan would be repaid. Similarly, under a mortgage creditor policy the mortgage payments would be made by the policy if the borrower became unemployed or disabled.
The benefit of that sort of insurance is that it prevents people from falling into arrears on mortgages, loans and other financial commitments, thus protecting a family's income stream. That has a knock-on effect in reducing the need to repossess houses or property as people with creditor insurance are less likely to default on their payments. It also reduces reliance on the state to pay the mortgage for them. The safety net of creditor insurance allows consumers to embark upon major purchases with confidence because, if they are unlucky enough to be made redundant or to have a serious accident or illness, the creditor policy will ensure that they can carry on making their payments.
Following the consumer boom and the recession, creditor insurance will help consumers to overcome their reluctance to make a major purchase. It will also boost the


housing market and will be generally helpful to the economy. Consumers who do not take out such insurance will have to rely on their savings or fall back on the state if they become unemployed or disabled. Creditor insurance allows purchasers to maintain their savings and investment programmes and not to have to draw on them in unfortunate circumstances.
Why do I believe that creditor insurance should be exempt from insurance premium tax? IPT is a tax on general insurance policies, but life insurance policies are exempt. My right hon. Friend the Paymaster General has said that IPT should apply at a low rate over a wide base, with few exemptions. To exempt creditor insurance would not set a precedent for other exemptions, as this is a unique situation. The exemption would clarify, not confuse.
There are a number of social and economic reasons for exempting creditor insurance from IPT. First, it should be exempt because it is really life business. Before the first EC insurance directive, most creditor business in the United Kingdom was classified as life business. It was transferred to general insurance only because of the need to comply with the directive. My right hon. and learned Friend the Chancellor has already exempted life insurance from IPT. It is just a quirk—nothing less—of insurance classification that creditor insurance is not already exempt.
Unlike other general insurances of possessions and property, creditor insurance is insurance of the person. It can include a combination of life, accident, sickness and unemployment cover. The life element is already exempt from IPT. Furthermore, some of the accident and sickness cover will be written in the long-term fund—for example, policies in excess of five years—and is then cover classified as permanent health insurance. The remaining accident, sickness and unemployment cover is classified as general business and therefore subject to IPT.
As creditor insurance is a composite product, it is ridiculous to have to split the various elements. I appreciate my right hon. and learned Friend's concern that special exemptions produce borderline cases and confusion. I know that the Treasury always wishes to avoid that. However, I understand that creditor insurance is the only significant insurance product that spans both life and general classes. It is the only wholly UK product where premiums will need to be apportioned between exempt and non-exempt risks.
The Government have been concerned with the practical issues arising from the implementation of IPT and they have tabled various useful amendments to deal with practical problems. However, the anomaly to which I refer still exists. Making creditor insurance exempt will be clear cut and rather than create confusion it will alleviate it.
Secondly, creditor insurance should be exempt from insurance premium tax because the playing field will not be level throughout the union. Other European Union countries treat accident and sickness cover as life business for premium tax purposes. In Belgium, for example, that element of general cover would be treated as complementary cover if written with an associated life contract, and would not be subject to premium tax. Hence, what is treated as life business for premium tax purposes differs from country to country, despite the harmonisation rules. That could create major problems in future.
Thirdly, creditor insurance should be exempt from IPT because the policy benefits are already taxed. Accident and sickness benefits can be captured for taxation under the rules relating to permanent health insurance.
Fourthly, creditor insurance should be exempt from IPT because the playing field will not be level between banks, building societies and insurance companies, and the cover offered could well become self-insured by credit institutions such as banks and building societies.
The cost of providing a waiver of payments in the event of the disability or redundancy of a customer could be met by increasing the interest rate charged to the customer. For example, a typical creditor product providing disability and redundancy cover could be offered by adding an extra 1 per cent. to the interest rate charged to the customer, so a bank normally charging 8 per cent. could provide a payment waiver by charging 9 per cent. instead. As it is a waiver of payments and not an insurance contract, IPT would not be payable, so banks providing such cover would have a price advantage over insurance companies of, currently, 2.5 per cent. of the gross cost. The advantage may appear to be small, but it is roughly equivalent to the profit margin operated by insurers under creditor business.
If the tax rate increases in future—everyone suspects that that is almost certain—the advantage will become more significant, so an unfair advantage is now being given to banks and building societies over insurance companies.
A similar position applies to surety bonds, which when offered by banks and building societies are not insurance. Ministerial confirmation has been given that surety bonds and similar contracts of guarantee written under general class 15(b) are not insurance contracts for the purposes of IPT.
It could be argued that there is an easier way of correcting the anomaly for creditor insurance. The IPT legislation could be changed so that banks offering such a waiver have to pay IPT. That may attract the Treasury in terms of extra revenue. However, it would require new legislation to include those contracts within the IPT net. It effectively extends IPT beyond insurance and it would be difficult to define in practice, thus the only practical way of correcting the anomaly to which I have alluded, and I hope explained, is to exempt creditor insurance from IPT.
Charging tax on creditor business will distort the market, but will not bring revenue to the Exchequer because the way of providing cover will change. The Government will have nothing to gain by taxing creditor business.
Fifthly, creditor insurance should be exempt from IPT because the development of insurance products to complement state benefits will be hindered if IPT is charged on such products. This is a more political point. From 6 April, employers have to meet the costs of statutory sickness pay. One way of meeting that cost is via an insurance contract, so the prudent employer who takes out an insurance contract to cover statutory sick pay liabilities will not only have to meet the expected cost of sick pay, but will have to pay tax on it.
We have seen Government interest in encouraging the private sector to assume a greater role in providing what are currently state insurance benefits for accident, sickness and unemployment.
My right hon. Friend the Chief Secretary to the Treasury is on the Front Bench; I know that this problem will be of interest to him and to my right hon. Friend the Secretary of State for Social Services.
A range of creditor schemes could be offered by insurers to replace state benefits such as unemployment benefit, statutory sick pay, state invalidity benefits and income support. They could cover mortgage repayments,


loan commitments, household bills and many others. Such schemes, if taken up, could greatly reduce the Government's expenditure on current state benefits. Such savings will far exceed the annual revenue expected from IPT on creditor insurance, which will represent only about 3 per cent. of the annual IPT income to the Exchequer. The imposition of the new tax, with a prospect of rate increases in future years, could make such creditor schemes less attractive to the private sector.
A new business is on the point of getting up and running and taking a huge load off the Government. It will deliver precisely what the Government believe is of utmost importance: it will involve the private sector in social insurance which is proving immensely damaging to Government finances. But at the very point when private insurance companies are prepared to provide this scheme and solve enormous problems for the Government, the Treasury slaps down a new tax. Hence it may not be worth while for private companies to become involved in this area in the future.
Even if the Government do not accept my more technical points about harmonisation between building societies and insurance companies, or my points about a level playing field in Europe and our insurance companies being disadvantaged, I hope that, in their general review of the social security system, they will take stock and consider whether they are doing the right thing or whether they are throwing out the baby with the bath water. I hope that, in my brief remarks, I have given a comprehensive account of why I believe that the Government should rethink their decision. I very much hope that they will do so.

Mrs. Diana Maddock: I welcome the opportunity to support the amendments proposed by the hon. Member for Exeter (Sir J. Hannam). Insurance premium tax will hit us all, but I think that it will hit vulnerable groups, such as those with disabilities, particularly hard. My hon. Friends in the Liberal Democratic party and I oppose the whole idea of tax on insurance. But if it cannot be stopped in its entirety, we believe that we should try to help those who will be hit hardest.
I have already spoken at some length in the House against insurance premium tax. It is a very unfair tax. Not only does it tax something that we want people to do, both for their own benefit and for that of the state, but it taxes those who need insurance most, such as people who are unfortunate enough to live in crime black spots, and the elderly and disabled.
People with disabilities who can drive usually own specially made or adapted vehicles, and they need vehicles more than most. It is already expensive for them to buy a suitable vehicle and many of them have special mobility needs which are recognised in the mobility component of the disabled living allowance. People in receipt of that component are exempt from road tax and those who receive higher rates of mobility allowance can also nominate others for that exemption. That is a welcome recognition by the Government of the importance of mobility to people with disabilities.
The cost of adapting vehicles is very high. It is also difficult for many disabled people to purchase cheap cars. They often have to buy at the top of the range because they

need cars with automatic gearboxes. It is estimated that 60 per cent. of disabled drivers need cars with automatic gearboxes.
The mobility organisation which was set up at the instigation of the Government helps people with disabilities to use their higher mobility allowance to buy or hire cars. But the organisation admits that it will have to pass on additional insurance costs to customers. I have been told by at least one organisation which helps disabled drivers—the Mobility Information Service—that the mobility allowance currently does not cover the cost of hiring, let alone buying, cars. Disabled people who can drive need their cars more than the average person, so how can we possibly put extra obstacles in their path?
The Mobility Information Service estimates unofficially that people suffering from epilepsy commonly pay 15 per cent. to 20 per cent. extra insurance because they are considered to be a high-risk group. The cost goes much higher for people with other illnesses and disabilities. In addition, modified vehicles may attract higher insurance premiums.
Liberal Democrats believe that insurance premium tax should not be imposed at all because it is a tax on something that we should encourage, and we are very disappointed that the Government do not agree. But when it comes to disabled people, for large numbers of whom cars or electric wheelchairs are absolutely essential for an active and fulfilling life, taxing vehicle insurance is very much more than disappointing. I hope that the Government will find some way to support the amendments proposed today.

Sir John Cope: The leading amendment in this group is No. 43, which was moved by the hon. Member for Edinburgh, Central (Mr. Darling). I must admit that the amendment rather surprised me, because it would delete a whole range of exceptions offered by the Bill. I accept that the hon. Gentleman moved it in a different spirit; he described it as a "marker for the future". He said that he still thinks—although we have discussed the matter before —that the legislation should define what a contract of insurance is.
I have told him in the past—I am still of that view—that the common law lays down what insurance is and hence what is taxable. I think that that definition is understood fairly well and I do not foresee any particular difficulty in interpretation. The hon. Gentleman asked, very fairly, that we keep the position under review, and I am happy to say that we will do that. I think that it is the correct thing to do, particularly when new taxes—such as this one and the airline passenger duty—are being introduced. I do not think that we shall need to change the legislation, but we shall keep it under review.
My hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) and others said that, throughout the discussions in preparing the tax, we have believed in the principle of low rate and wide coverage. I think that that is the correct principle. For that reason, I am reluctant to go down the road that he suggests with regard to creditor insurance. I do not say for a moment that creditor insurance is not a worthwhile and prudent, and every other complimentary adjective that he can think of, form of insurance, and he made some interesting points about it. As


I have said to the hon. Member for Edinburgh, Central and the House, we shall keep the details of the tax under careful consideration.
The hon. Gentleman made some points which my colleagues—he referred to several of them—and I will consider very carefully. At one stage, he said that banks and insurance companies should be treated in an even-handed way. I am very keen for banks and insurance companies to be treated in that way and we have discussed the matter before, in Committee. Indeed, we are having useful discussions with the British Bankers Association and others about the borderline between taxable insurance and guarantees and other financial circumstances that are outside the scope of the legislation.
It is already clear that few of the financial services provided by the banks will carry any insurance premium tax liability, but banks and insurance companies must be treated in an even-handed way. When an insurance company provides a guarantee or a service which is identical to that provided by banks, it will also be exempt under the legislation. Similarly, when banks provide true insurance services in the same way as insurances companies, they will be liable to insurance premium tax.
I am sensitive to what my hon. Friend the Member for Gainsborough and Horncastle said about the comparison between banks and insurance companies. However, I do not think that it would be right for me to recommend that the House support his amendment at this stage, although I promise that we shall examine it in the light of his remarks.

Mr. Leigh: That is extremely helpful. I believe that my right hon. Friend is saying that, if I were to provide evidence of how insurance companies were being put in an unfair competitive position in relation to banks and building societies or foreign competitors, he would consider it sympathetically. I am grateful for that.

Sir John Cope: I do not want to make any promises to my hon. Friend or to increase his hopes more than is justified, but I am certainly willing to listen to the new points that he has raised and to any further ones that he might add.
In our discussions on this tax, as in those on the airport duty, it has been my job to expose the hard face of tax collectors. I stand by the general position that we have adopted of a low rate and wide coverage. It is perhaps therefore not inappropriate, in the closing minutes of this part of the debate, if I display to my hon. Friend the Member for Exeter something that is seen more rarely—the Treasury's heart.
My hon. Friend has been supported by all the hon. Members who have referred to Motability. Motability itself and my hon. Friend the Member for Exeter have made forceful representations to us. Because of its unique position, Motability already has a number of special arrangements in taxation matters, and we think that it is right to extend them to the insurance premium tax. Therefore, I recommend that the House support the amendment moved by my hon. Friend the Member for Exeter.

Mr. Darling: All hon. Members will welcome the concession that the Government have made in respect of the amendment moved by the hon. Member for Exeter (Sir J. Hannam). People with disabilities already face formidable additional expense, and an exemption from insurance premium tax will be welcomed by everyone.
As the Paymaster General said, amendment No. 43 is a probing amendment. It was not intended to be anything more but, in some ways, the right hon. Gentleman made my point when replying to those made by the hon. Member for Gainsborough and Horncastle (Mr. Leigh). The right hon. Gentleman said that the Government were engaged in discussions with the British Bankers Association about certain bank guarantees and the difficulties that might arise vis-a-vis them and certain insurance contracts. I shall not repeat the arguments made in Committee, but he must recollect that, in our exchanges on 6 March, the right hon. Gentleman had to reply to a number of instances where it was not clear whether something was insurance, a warranty or a guarantee. I still believe that at some point it would be useful for the Government to reconsider that matter.
Another reason that we should return to that point was highlighted by the hon. Member for Gainsborough and Horncastle, who went to the heart of the discussions that took place on Second Reading and in Committee. He mentioned the philosophical approach that we should adopt to insurance. I can understand why the Government, in their present state, looked around for something to tax in order to raise revenue, and realised that insurance, which, generally speaking, is taxed in the rest of the European Union, has not been taxed in this country until now. What the hon. Member for Gainsborough and Horncastle said about creditor insurance could equally be said about motor and household insurance.
Insurance is a social and economic necessity, and it is something that we should encourage. The hon. Member for Gainsborough and Horncastle made some good points about creditor insurance. He referred to prudent employers insuring against the sickness or illness of their employees. In Committee, we mentioned instances where the principal of a business might ensure against a long and debilitating illness because the business might collapse if that person was off sick.
They are good points, but the difficulty is that, if the Government allow exemption after exemption, the tax base shrinks. I fully accept that, and it is perhaps something with which the Government should have dealt before they sought to impose the tax. It seems that the Government looked for something to tax, found that insurance was exempt and decided to impose IPT. It might have been useful if, before they had done so, we had debated the philosophical approach to insurance.

Mr. Leigh: The hon. Gentleman is making a good point. I am sure that the House accepts that the Government are in an impossible position: whatever arguments are advanced, they do not want more exemptions, which complicate the system. Does the hon. Gentleman accept my point that creditor insurance is unique because it is a mixture of life and general policy? Trying to take it out of life policy and put it under general policy is unfair and merely confuses the issue. Would it not simplify the issue if creditor insurance was exempted?

Mr. Darling: I appreciate the hon. Gentleman's argument, but my recollection is that there is provision in this part of the Bill for hybrid insurance, where there is a mix of short-term and long-term insurance contracts. I see that the Paymaster General, who has probably read this part of the Bill more recently than I have, appears to be nodding in assent. There is provision for exemption, but I readily accept that a case can be made for creditor insurance.


Indeed, we tabled probing amendments in Committee which made similar points to those made by the hon. Member for Gainsborough and Horncastle.
However, as I said, the same arguments can be advanced for motor insurance, because it is not in society's interest for people to drive around without paying their insurance. Nearly 40 per cent. of people in London do not have household insurance. Some people cannot get it, which is another issue that we have not discussed. We all agree that people should take out insurance. Many people want to do so but cannot get cover, because companies will not give a quotation or will quote a price that people cannot afford. The problem has been mentioned in the newspapers and the Government should have regard to it.
However, the central point raised by the hon. Member for Exeter, which can be canvassed under amendment No. 43, is that the House tends to legislate first and think about the consequences later. In this case, it might have been useful to have examined the consequences and the approach that we should take to insurance before imposing tax. Taxation has consequences, a notion with which the Government have not dealt.
I understand the Government's problem. They still have to deal with the highest public sector borrowing requirement that this country has ever had and, of course, their past mistakes have to be paid for. People who pay premiums on insurance contracts have to contribute. I understand the Government's desperate plight in trying to raise money but their actions will have consequences that the Government have either not realised or on which they are not prepared to focus.
The Paymaster General can indeed say with some force that, at the moment, the rate is only 2.5 per cent., but how many of us believe that the rate will stay the same? The Government are committed to indirect taxation. If there is a choice between direct and indirect taxation, they will return to insurance premium tax. We did not call insurance premium tax "VAT on insurance" for nothing. If it had not been for a European directive, I am sure that VAT would have been imposed on insurance. The proposed tax will have a damaging effect on many people who have to pay insurance. Amendment No. 43 would have allowed the House to focus on the effects of the tax because we could have dealt with the philosophical approach to be adopted.
Clearly, the Government decided to exempt long-term or life insurance for very good reasons, and no one would argue that it should be taxed. Nor would anyone argue that pensions, which are a form of insurance, should be taxed. Private pension provision and state provision are complementary; they go hand in hand and should be encouraged. However, general insurance is important and has social and economic effects, which is why we opposed the introduction of the new tax on Second Reading and in Committee. I understand why Conservative Members are raising such matters. Although the Government can make exemptions, such as the welcome one made in response to the hon. Member for Exeter (Sir J. Hannam), when wider exemptions such as those for creditor insurance are made, the tax base shrinks.
The Minister said that he wanted a low rate with wide coverage. I guess that in future there will be wider coverage and higher rates. In most people's experience, once a tax is imposed it is not removed. We now have a

new tax, about which the Government said nothing at the election, and they will return to it again and again, in their desperate attempt to raise money. That is why many people, not only in the House but outside, are concerned about the measure.
Having acknowledged that our amendment was probing, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 40, in page 52, line 44, at end insert—
'(ba) the contract relates only to a motor vehicle where the conditions mentioned in subsection (2A) below are satisfied;'.

No. 41, in page 53, line 22, at end insert—

'(2A) The conditions referred to in subsection (2)(ba) above are that—

(a) the vehicle is used, or intended for use, by a handicapped person in receipt of a disability living allowance by virtue of entitlement to the mobility component or of a mobility supplement,
(b) the insured lets such vehicles on hire to such persons in the course of a business consisting predominantly of the provision of motor vehicles to such persons, and
(c) the insured does not in the course of the business let such vehicles on hire to such persons on terms other than qualifying terms.

(2B) For the purposes of subsection (2A)(c) above a vehicle is let on qualifying terms to a person (the lessee) if the consideration for the letting consists wholly or partly of sums paid to the insured by—

(a) the Department of Social Security,
(b) the Department of Health and Social Services for Northern Ireland, or
(c) the Ministry of Defence, on behalf of the lessee in respect of the disability living allowance or mobility supplement to which the lessee is entitled.'.

No. 42, in page 53, line 41, at end insert—
'(7A) For the purposes of this section—

(a) "handicapped" means chronically sick or disabled;
(b) "disability living allowance" means a disability living allowance within the meaning of section 71 of the Social Security Contributions and Benefits Act 1992 or section 71 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992;
(c) "mobility supplement" means a mobility supplement within the meaning of article 26A of the Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983, article 25A of the Personal Injuries (Civilians) Scheme 1983, article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) Order 1985 or article 3 of the Motor Vehicles (Exemption from Vehicles Excise Duty) (Northern Ireland) Order 1985.'. —[Sir John Hannam.]

Clause 88

BENEFICIAL LOAN ARRANGEMENTS

5 pm

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): I beg to move amendment No. 2, in page 68, line 45, at end insert—
'( ) In determining for the purposes of section 161(1A) and (1B) of that Act (inserted by this section) whether any loans made by any person before 1st June 1994 are made or held on the same terms or conditions, there shall be left out of account any amounts, by way of fees, commission or other incidental expenses, incurred for the purpose of obtaining any of those loans by the persons to whom they are made.'
This is a minor extension to the provision that we introduced to stop employees having to pay income tax on loans from their employers where employers make loans to the public on the same terms. For loans made before 1 June


1994, the amendment disregards differences between loans to employees and loans to the public caused by the incidental cost of obtaining the loans. That is a small change, but I believe that it will be welcomed by the employees and employers affected, and also by the Inland Revenue, because it will simplify the system.

Mr. Nicholas Brown: As I understand it, the purpose of the amendment is simply to deal with the administrative costs involved in the making of the loan, so it is intended to be an even smaller alteration than the Financial Secretary to the Treasury suggested, because typically those costs are about £100 per transaction. I should welcome an assurance from the Minister that, in the Government's view, the amendment represents simply a tidying up of the original proposition that we discussed in Committee, and that there is no scope for rejigging the arrangements that could allow any unwanted and unwelcome avoidance.

Mr. Dorrell: This is indeed a tidying-up measure. It is slightly more important for the employees concerned than the hon. Gentleman suggests, because under the law as originally written, the fact that an employee had not had to pay a £100 management charge would mean not only that he would not receive the tax concession on the £100 but that he would not receive it at all. That would come about because the public would have to pay the administration charge, so technically the loan would not have been made available on the same terms as loans made to a wider public.
The purpose of the amendment is to tidy up the effects of the clause in that specific set of circumstances. It applies only to loans made before 1 June 1994, because it seems reasonable that, after that date, employers should ensure that if employees are to benefit from the terms of the provision, they must make available to them loans on precisely the same terms as those available to a wider public.

Amendment agreed to.

Clause 93

INDEXATION LOSSES

Amendment made: No. 44, in page 74, line 13, at end insert
'and Schedule [Indexation losses: transitional relief] to this Act (which gives transitional relief) shall have effect for the years 1993–94 and 1994–95.'.—[Mr. Portillo.]

Clause 122

SALE AND REPURCHASE OF SECURITIES: DEEMED MANUFACTURED PAYMENTS

Mr. Nigel Forman: I beg to move amendment No. 1, in page 115, line 48, at end insert—
'(10) Before the Treasury appoints a day under subsection (9) above:—

(a) the Treasury and the Board of Inland Revenue will consult such organisations as appear to them to be representative of interests substantially affected by sections 737A to 737C; and
(b) the consultation required by (a) above shall take into account the matters specified in subsection (11) below.

(11) The matters specified for the purposes of subsection (10) above are:—

(a) the amount of taxation that would not be recoverable were no day to be appointed under subsection (9) above; and
(b) the burden (including compliance) for taxpayers and other affected by sections 737A to 737C.'.

The amendment stands in my name and in that of my hon. Friend the Member for Fulham (Mr. Carrington), and I believe that my hon. Friend hopes to catch your eye later in this short debate, Mr. Deputy Speaker.
I begin by declaring my interests, which appear on the Register of Members' Interests, and which are relevant to the subject. I also record my thanks to the British Merchant Banking and Security Houses Association, one of the organisations that has been most prominent in drawing the subject to the attention not only of the Standing Committee but of Ministers—I believe quite effectively.
By inserting the proposed words at the end of what is now clause 122, my hon. Friend and I hope to achieve several simple but worthwhile purposes. First, we hope to bring about or encourage—indeed, to require—the fullest possible consultation of practitioners by the Treasury and the relevant officials in the Inland Revenue. Our second aim, which is just as important, is to ensure that the consultation takes place before the new rules are implemented. In other words, to be truly effective from the practitioners' point of view, consultation must take place before the event.
Thirdly, we hope that there will be sufficient time sensibly to address all the practical problems of implementation. The Financial Secretary to the Treasury will know from his experience of tax matters that the area is potentially extremely complicated, so sufficient time is necessary to obtain a sensible tax regime. Fourthly, we want the consultation process to take full account of the potential compliance burdens. If those burdens were too great, adverse consequences for this country could follow.
I hope that the Financial Secretary will be able to confirm that the Government have no intention of discouraging normal commercial repo transactions from being undertaken in the United Kingdom, and that his objective will be to establish a workable regime that strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on the market. If my hon. Friend can achieve that balance, many of the objectives to which I have subscribed my name will have been achieved.
Of course clause 122 is necessary to protect the Exchequer, and to ensure a reasonable flow of revenue for this country from the sale and repurchase of securities conducted within this tax jurisdiction. That is understood. But equally, Ministers for their part should understand that, if the tax or the regulatory arrangements under the clause were allowed to become too complicated or burdensome, firms could switch that highly mobile form of business to other financial centres. Then the expected revenue and other wealth-generating benefits of those growing activities could be lost to this country.
I have often said in earlier debates on the Bill that we now live in a world of global capital flows, mobile financial services and increasing competition between national tax authorities. In that context, the consultation that the amendment recommends is all the more important. We must take full account of the new global realities if we are to do what is best for Britain, as well as for the financial services industry located here.


I welcome the letter sent to me on 12 April by the Economic Secretary to the Treasury, which said:
The Government wishes to ensure that adequate consultation takes place before the new rules are implemented, and indeed it is for that reason that they are to come into force from a future appointed day. The legislation is necessary to protect the Exchequer and implementation cannot be delayed indefinitely but I confirm that a reasonable time will be allowed for practical problems to be addressed and that the consultative process will take account of the compliance burden involved.
That was a good statement from the Economic Secretary, and I hope that my hon. Friend the Financial Secretary will be able to go at least as far as that today, if not further.
In conclusion, naturally I hope that my hon. Friend will be able to accept my modest but necessary amendment. If, for some reason, he cannot do that, I hope that he will at any rate make it crystal clear to me and to the House, on the record, that he and the Chancellor share its spirit and intentions and that they will insist that Inland Revenue officials, in their consultations with the practitioners, act in that light.

Mr. Matthew Carrington: I support my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), because the derivatives industry and trading in derivatives are of increasing importance to the City of London as a financial centre. It would be disastrous if anything happened that gave rise to a decrease in confidence in that industry and which resulted in that market moving away from London to somewhere in Europe or elsewhere in the world.
The purpose of the amendment is to get a public statement from the Government that they do not intend to penalise that industry, but to achieve an equitable taxation regime, which both the industry and the Government need, which would allow the industry to develop and to prosper in London while producing the revenues which, quite legitimately, the Government require.
We look for confidence-building rather than for action. We look for the reassurance that nothing will be imposed on the industry until all the foreseen problems are resolved, with the understanding, of course, that the problems have to be resolved within a reasonable period. The clause imposes a time limit of its own accord. I urge my hon. Friend the Financial Secretary to make a statement that will reassure the industry.

Mr. Darling: The trouble with the amendment is that it could equally well be tabled to every other clause in the Bill. All taxpayers could say that they too should be consulted before the Government change the tax regime. However, I very much understand and appreciate the point made by the hon. Members for Carshalton and Wallington (Mr. Forman) and for Fulham (Mr. Carrington) with regard to this industry. Most of us are well aware of the importance of the industry to London, and therefore to the United Kingdom.
Equally, all of us are becoming aware of tax competition, not just in the European Union, but throughout the world. Many people inside and outside the House will have to wake up to the fact that there will be tax competition, and every Government must pay regard to that. Having said that, I believe that there are times when the industry relies rather too much on the excuse that, if it

is taxed, business will go elsewhere. The Exchequer must be fair to taxpayers in general, as well as being mindful of the effect on the industry.
The central point is that, in some ways, the amendment is a fitting conclusion to the Report stage. Many Committee members, especially those who follow proceedings outside the House, felt that the taxes management provisions of this year's Finance Bill might have been dealt with separately from other provisions that were more politically contentious. When this part of the Bill was being discussed, we were told that it was being taken first under the guillotine because there had already been widespread consultation. That point was open to discussion, to put it no higher than that.
It would be useful for the Financial Secretary to tell us whether the Government intend to adopt the practice of introducing a taxes management Bill in addition to the Finance Bill, so that some of the technical matters, which are not as controversial as others, can be debated in greater depth. There were occasions in Committee when we did not do justice to many of the provisions because we did not have the time. If taxes management is mixed up with politically contentious issues, we tend to concentrate on the latter. As a matter of good Government practice, greater attention should be given to the administration of the tax regime.
I have no objection to the Government consulting; I should be interested to hear what the Government have to say on that. My difficulty with the amendment, which I do not suppose for one minute will be pressed to a Division, is that it would be wrong for the Government to agree to consult in respect of one provision in the Bill and not to make the same concession everywhere else. Having said that, I understand why the hon. Members for Carshalton and Wallington and for Fulham made their point. Indeed, the hon. Member for Carshalton and Wallington very fairly said that there was concern in the industry.
It would not be right for the House not to acknowledge the fact that millions of people would like to be consulted, not least the millions of people who were led to believe in April 1992 that, if they elected a Conservative Government, there would be reductions in tax. No one consulted them about the Government's policy to tax them again and again, with the result that we have the largest tax hike in peacetime history, without a word of consultation, let alone a word of apology from the Government.

Mr. Dorrell: The last point made by the hon. Member for Edinburgh, Central (Mr. Darling) may be more fully addressed on Third Reading. On his narrower point about a proposed taxes management Bill, I tell him that the Government's view has not changed. We have said several times that we do not believe that a separate taxes management Bill is a sensible way for the House to go and that the Government's approach of ensuring that there is the maximum possible consultation, especially on issues that are not the stuff of intense party political interest or, indeed, of wider political interest, but are more narrowly technical in terms of their application to the tax system, is more sensible.
The Government have sought to consult widely on those issues before introducing proposals in the House. The contents of this year's Bill included several proposals that were the subject of extensive prior consultation. All the


proposals on self-assessment were the subject of extensive consultation before the Bill was presented, and the proposals in chapter II on interest rate and currency contracts were consulted on widely, as were a number of other proposals. That is a better way to deliver detailed, in-depth discussion on the operation of legislation than introducing a specific Bill and expecting that our Standing Committee procedures can be refined to produce line-by-line consideration of such technical matters. I am bound to say that those who believe that our procedures could be thus refined suspend belief.
I now turn to the point of the amendment. It will come as no surprise to the House that I do not propose that we accept it. However, I am happy to accept the basic argument advanced by my hon. Friend the Member for Carshalton and Wallington: that we should ensure that we consult the industry to maximise the opportunity for agreement before the clause is brought into effect. I fully accept that further consultation is appropriate to establish precisely how the procedures should operate in relation to the repurchase of securities. It is for that reason that the legislation comes into effect from an appointed day rather than immediately after Royal Assent. The intention is to allow reasonable time to enable any potential compliance problem to be identified and addressed before the rules are extended to cover repos.
The consultation process has already begun, and I can assure the House that the objective is to establish a workable regime which does not impose on taxpayers a compliance burden that is more onerous than is absolutely necessary to protect the United Kingdom Exchequer. It is accepted on both sides that the Exchequer interest is an important interest. The intention of the clause is to safeguard that interest. We intend for that reason to ensure that the clause is implemented. There is no question of the clause not being implemented or of implementation being delayed indefinitely. The purpose of the clause is to protect the Exchequer from the real risk of tax being lost from repos being used to switch tax credits from persons who cannot use them to persons who can.
In discussing the procedural issues with market representatives, the Inland Revenue will attempt to arrive —this is the point about which my hon. Friend the Member for Carshalton and Wallington was concerned—at an agreed solution, if that is possible, which strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on markets.
I can give my hon. Friends the Members for Carshalton and Wallington and for Fulham the clear assurance that the Government have no intention of discouraging the legitimate repo market. It is a form of derivative which has a clear function to perform in financial markets, and I have no difficulty whatever with that. The use of repos to avoid tax in the way I have described is, however, not legitimate and it is that point that we wish to address. That focus was the reason for introducing the clause in the first place and the reason why the clause will ultimately be implemented. However, we shall try to do it by agreement.

Mr. Forman: May I briefly impose on the House a few more words? There are two points on which I want to touch in relation to the comments by the hon. M for Edinburgh, Central (Mr. Darling). First, he suggested at one stage that the industry may be making an empty threat to move elsewhere. I am sure that he does not really believe that. In

fact, many of the firms that are most concerned with those activities and which are growing most successfully are already multinational and already have offices established in other financial centres to which they can switch the business with a few phone calls. It would be as quick and as easy as that, so the matter is of real concern to the industry.
Secondly, the argument that all branches of society that are affected by tax could argue that they should have more time to consult with the Government does not hold as much water as the hon. Gentleman thinks. We are discussing an especially complicated area of tax and regulations, as I am sure that he appreciates. We are all pretty low on the learning curve with regard to derivatives and it is an area which is so arcane in the eyes of legislators and tax authorities that the need for consultation is underlined rather than diminished. That is all I shall say to the hon. Gentleman, and in a friendly spirit.
In his welcome remarks, my hon. Friend the Financial Secretary gave assurances for which I am grateful. I know that the industry will be grateful to have those assurances on the record. In the light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 125

PAYMENT BY INTERMEDIARY

Amendments made: No. 3, in page 119, line 11, leave out 'of the payment made by the intermediary' and insert
'determined in accordance with subsection (2A) below.'.

No. 4, in page 119, line 17, at end insert—

'(2A) The amount referred to is—

(a) if the amount of the payment made by the intermediary is an amount to which the recipient, is entitled after deduction of any income tax, the aggregate of the amount of that payment and the amount of any income tax due; and
(b) in any other case, the amount of the payment made by the intermediary.'

No. 4, in page 119, line 17, at end insert—

'(2A) The amount referred to is—

(a) if the amount of the payment made by the intermediary is an amount to which the recipient is entitled after deduction of any income tax, the aggregate of the amount of that payment and the amount of any income tax due; and
(b) in any other case, the amount of the payment made by the intermediary.'

No. 5, in page 119, line 18, leave out 'is made to an employee' and insert
'of, or on account of, assessable income of an employee is made.'.

No. 6, in page 119, line 24, after 'persons' insert 'who include'.—[Mr. Dorrell.]

Clause 126

TRADEABLE ASSETS

Amendments made: No. 7, in page 119, line 28 leave out '203B' and insert '203BD'.

No. 8, in page 119, line 29, leave out '125' and insert
`(Employees working for persons other than their employers, etc.).'—[Mr. Dorrell.]

Clause 130

SUPPLEMENTARY

Amendments made: No. 9, in page 122, line 10, after 'section,' insert '(a)'.

No. 10, in page 122, line 12, leave out '203B to 203F' and insert
'203B, 203BB and 203C to 203F, other than a payment whose amount is determined in accordance with section 203B(2A)(a) or 203BB(3)(a); and
(b) any reference to an employer includes a reference to a person who is treated as making a payment by virtue of section 203BB(2).'.
No. 11, in page 123, line 32, after 'and' insert `(subject to section 203G(2)(b)r.—[Mr. Dorrell.]

Clause 131

PAYMENTS ETC. RECEIVED FREE OF TAX

Amendment made: No. 12, in page 124, line 14, at end insert—
`(2) In this section any reference to an employer includes a reference to a person who is treated as making a payment by virtue of section 203BB(2).".'—[Mr. Dorrell.]

Clause 176

PERSONAL AND TRUSTEE'S RETURNS

Mr. Dorrell: I beg to move amendment No. 14, in page 161, line 35, after 'may', insert 'reasonably'.

Mr. Deputy Speaker (Mr. Michael Morris): I understand that with this it will be convenient to discuss Government amendments Nos. 15 to 23.

Mr. Dorrell: In the course of debate in Committee on the self-assessment provisions of the Finance Bill, the Government accepted amendments to the clause relating to personal and trustee's returns which were tabled by the Opposition. That was an example of the listening Government in action—the Government who are ever prepared to be flexible in response to sensible proposals from the Opposition. The amendments ensured that documents and other accompanying material required with a tax return issued to an individual or trustee would be limited to those which could be reasonably so required. It was a case that was pressed on us articulately and persuasively by the hon. Member for Newcastle upon Tyne, East (Mr. Brown) and I am happy to commend the resulting amendments to the House.

Mr. Nicholas Brown: It is not the Opposition's intention to oppose the amendments. Their purpose was to insert a test of reasonableness. The Financial Secretary, being a reasonable man, accepted our arguments and has been good enough to bring back the amendments on Report. I rise solely to thank him for it.

Amendment agreed to.

Amendments made: No. 15, in page 161, line 39, leave out 'required in pursuance of the notice' and insert 'so required'.

No. 16, in page 162, line 19, after 'may', insert 'reasonably'.

No. 17, in page 162, line 23, leave out 'required in pursuance of the notice' and insert 'so required'.—[Mr. Dorrell.]

Clause 179

RETURN OF PROFITS

Amendments made: No. 18, in page 164, line 16, at beginning insert—
'-( ) In subsection (1) of section 11 of the Management Act (return of profits), after the words "as may", in both places where they occur, there shall be inserted the word "reasonably".
( ) In subsection (1A) of that section, after the words "a company may", in both places where they occur, there shall be inserted the word "reasonably".'.
No. 19, in page 164, line 16, leave out from 'subsection (2) of' to
'there' in line 17 and insert 'that section'.—[Mr. Dorrell.]

Clause 182

PARTNERSHIP RETURN

Amendments made: No. 20, in page 166, line 11, after `may', insert 'reasonably'.

No. 21, in page 166, line 14, leave out 'be required in pursuance of the notice' and insert 'reasonably be so required'.

No. 22, in page 166, line 21, after 'may', insert `reasonably'.

No. 23, in page 166, line 24, leave out 'be required in pursuance of the notice' and insert 'reasonably be so required'.—[Mr. Dorrell.]

Clause 187

AMENDMENT OF PARTNERSHIP STATEMENT

Mr. Dorrell: I beg to move amendment No. 24, in page 173, line 35, leave out from 'notice' to 'under' in line 36 and insert
'to each of the partners so amend his self-assessment'.
The amendment clarifies the Government's intention that, where a partnership statement is amended, the Inland Revenue will notify each of the partners of the consequential amendment to their individual self-assessments.

Mr. Nicholas Brown: That was another of the Opposition's rare victories in Committee. Again, may I thank the Financial Secretary for returning to the matter on Report. It seems fair to us and clearly also strikes the Financial Secretary so, that the choice of partner should not be left to the taxing authorities. It should be clear that, if a notice is to be issued, each partner should be informed and that we should not rely only on the notice going to one partner who may not be the relevant partner for taxation purposes. That was the thrust of the debate in Committee, and the Government have accepted the reasonableness of the Opposition's point of view. I thank the Financial Secretary for it.

Amendment agreed to.

Schedule 18

MANAGEMENT: OTHER AMENDMENTS

Mr. Dorrell: I beg to move amendment No. 25, in page 385, line 30, at end insert—

'CLASS 4 CONTRIBUTIONS

44A. In subsection (1) of section 16 of the Social Security Contributions and Benefits Act 1992 (application of Income Tax Acts to class 4 contributions), for paragraph (b) there shall be substituted the following paragraph—
(b) the provisions of Part VA (payment of tax) and Part X (penalties) of the Taxes Management Act 1970,".'.

The provision concerns the extension to class 4 national insurance contributions of the administrative machinery rules that apply to income tax. In general, those rules are automatically applied through the operation of section 16 of the Social Security Contributions and Benefits Act 1992 and no specific provision is needed for class 4 national insurance contributions to take account of the introduction of self-assessment.

However, self-assessment contains one new element: a surcharge for the late payment of tax introduced by clause 192. I am advised that it is not entirely free from doubt that surcharge could be imposed on unpaid class 4 contributions. The amendment makes it clear that the rules for surcharge in relation to income tax, contained in the Taxes Management Act 1970, are equally applied to unpaid class 4 national insurance contributions.

Mr. Nicholas Brown: I am afraid that we cannot take responsibility for this amendment. It deals with an oversight in the Government's drafting of the regulations for their surcharge regime. Nevertheless, I am sure that it is reasonable.

Amendment agreed to.

Clause 253

CALLING FOR DOCUMENTS OF TAXPAYERS AND OTHERS.

Mr. Dorrell: I beg to move amendment No. 13, in page 222, line 39, leave out
'or assist in the evasion or avoidance of tax'.
Clause 253 requires a tax inspector to give the taxpayer his reasons for applying for consent to issue an information notice in respect of that person's tax liability. One of the exceptions to that requirement in the clause as currently drafted is where a general or special Commissioner is satisfied that there are grounds for believing that the disclosure of the reasons would prejudice the assessment or the collection of tax or assist in the evasion or avoidance of tax.
In Committee, concerns were expressed that the use of the term "avoidance" could lead to an inspector's reasons being withheld in cases of straightforward tax planning. That was never intended. In view of those concerns, we have decided to remove the reference to evasion and avoidance of tax from the clause. That should allay the fears of hon. Members and also bring the new provision into line with similar references elsewhere in the statute book.

Mr. Nicholas Brown: I welcome what the Government are doing, for which I think that the Opposition may claim some credit. It is quite an important matter. Clause 253, as it is harmlessly described now, was the much more controversial clause 240 in Committee, and was followed by the even more controversial clause 241, which the Financial Secretary withdrew, to approval from hon. Members from all parties.
The debate in Committee was heated. Points made by Labour and Conservative Members were critical of the Government's wording of their legislation. Although, I

accept, as the Financial Secretary told us at the time, that the purpose of clause 253 was to grant a concession rather than to place a burden on the taxpayer, exception was rightly taken to the choice of "avoidance and evasion" as a phrase.
It was not only the phrase that the Financial Secretary used in the debate, but the wording in the Bill, and it was clear to Opposition Members and, indeed, to the Financial Secretary's hon. Friends that "avoidance" in some circumstances is open to a wide interpretation and could be construed to refer to the perfectly lawful arrangements that a taxpayer makes. I am glad that the Financial Secretary has decided to think again, and the proposed outcome is for the best.
5.30 pm
It is right to put on record the considerable disquiet that was felt on the Opposition Benches at the way in which the debate was handled in Committee. The timetable motion was set out in such a way that the debate—an important one—was the final debate on a Thursday. The Committee's sitting hours on a Thursday were shorter than those on a Tuesday under the guillotine. It was unfortunate that such an important debate was the final debate on the Thursday when it took place, a day on which other controversial matters were discussed.
I felt at the time that it might not be possible to discuss the issue in Committee because of the terms of the guillotine motion. Indeed, we almost lost the opportunity to debate it. It would have been extremely serious if there had been a straight vote for or against the clause and the following clause, without pertinent matters having been explained and explored and without the Government having the chance to change their mind.
There are two lessons for us. First, debate in Committee can be of some importance. Secondly, guillotine motions or timetable agreements, which I hope we shall have in future, should be drawn with much more care and, dare I say it, with much more consultation.

Mr. A. J. Beith: I welcome the change that is set out in the Government's amendment. The change, together with the abandonment of former clause 241, reflects the strong feelings that were expressed in Committee. The Minister and the Revenue should recognise that it was felt in Committee that, in a combination of clauses, the Revenue were trying it on a bit. When it reached the point at which the Revenue sought to have power over the papers of taxpayers who were guilty of no misdemeanour, merely because there was a suspicion that their accountant in his dealing with another taxpayer may have assisted improperly in withholding information from the Revenue, the Committee felt that it was too much of a try-on.
The Revenue is expected seriously to chase tax evasion and to do so thoroughly. There is a difficult line to be drawn. The Minister may take some lesson from the general feeling of the members of the Committee that the two clauses taken together seemed to go too far. The Minister has obviously recognised that.

Mr. Dorrell: I intervene briefly, but not to have a re-run of the debate that took place in Committee. I shall content myself by thanking the House for its welcome for the outturn of our debates.
I shall take up the closing comments of the hon. Member for Newcastle upon Tyne, East (Mr. Brown). I


shall not repeat old arguments about the degree of consultation on the operation of the guillotine. I wish only to observe that the hon. Gentleman did not say that we should never have a timetable motion again. Instead, he recommended the way in which a timetable motion might be better administered. I assure him that my right hon. Friend the Chief Secretary and I, and perhaps more importantly for this purpose my right hon. Friend the Leader of the House, heard and noted his remarks.

Mr. Nicholas Brown: For the avoidance of any doubt, it has always been my view that the sensible timetabling of the taxes management part of the Finance Bill should be encouraged and welcomed. In the past, we entered into arrangements with the Government which effectively did exactly that.

Amendment agreed to.

Schedule 25

REPEALS

Amendment made: No. 35, in page 452, line 46, at end insert—

'(3) Assigned matters: minor corrections


Chapter
Short title
Extent of repeal


1979 c. 2.
The Customs and Excise Management Act 1979.
In section 118A, subsection (7). 


1983 c. 55.
The Value Added Tax Act 1983.
In Schedule 7, in paragraph 7, sub-paragraph (6).'

—[Mr. Portillo.]

Order for Third Reading read.

The Chief Secretary to the Treasury (Mr. Michael Portillo): I beg to move, That the Bill be now read the Third time.
Life is full of surprises. Here we are, shortly after 5·30 in the afternoon, turning to the Third Reading of a Bill which has proceeded under a guillotine. I make the point not to create any tension or upset between the occupants of the Front Benches but merely to remark that a Bill which has proceeded under a timetable motion has been given sufficient time for hon. Members to consider the important matters that have been placed before them.
I think that many hon. Members on both sides of the House have found the timetabling of the Bill to their convenience. I think also that that goes for many people outside the House. It has been a matter of convenience for them. It has been much clearer to outside interests that have a legitimate point of view to put to the House when the matters in which they were interested would come before the Standing Committee for consideration. As a consequence, they have been able to make their recommendations in a timely way.
I say nothing about what future proposals might be for the handling of these matters. It is worth putting on record, however, that the timetabling of the Bill has not led to any shortage of debate or shortage of opportunity to make representations. I think that in general the process has proceeded smoothly.

Ms Angela Eagle: As this was my first Finance Bill, I am in a slightly odd position because I do not know what a Finance Bill without a guillotine is like.

Is the Chief Secretary saying that the Conservative party will be happy to have future Labour Governments' Finance Bills guillotined at the beginning of the parliamentary process so that they, too, can be speedily dispatched?

Mr. Portillo: No. I have restricted myself to making comments about the past and not about the future. It is important to get the past straight. I wanted to do that. I think that the only way that things might be done differently, were this process ever to take place again, would be that the Opposition would want to attend the Business Committee, at which the phasing of this Bill was first discussed.
The guillotining of the Bill was only one of several novelties this year. We found ourselves debating a Finance Bill at a time of year to which we were not accustomed. We debated the Bill at the beginning of the year. We found ourselves also taking time out of the Committee to run to various television and radio studios to debate some of the tax measures that were to come into force at the beginning of April. The paradox was that most of the tax measures that we found ourselves debating in various studios were not measures contained in the Bill. Instead, they were measures that were introduced by the previous Budget of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont).

Mr. Beith: Before the Chief Secretary gets fully into this especially interesting part of the past, I hope that he will not fail to notice that among the novelties of the Bill were two new taxes, neither of which had been the subject of any prior consultation—one on airports and one on insurance. Another novelty was that the Bill was printed in two volumes, being of greater length than any previous Finance Bill.

Mr. Portillo: Yes, the Bill was of greater length than its predecessors. As the right hon. Gentleman says, it was the first time that the Bill was printed in two volumes. For that reason, I thank all members of the Standing Committee for their diligence in paying attention to the Bill. It was for the reason of length that the guillotine motion provided for rather more hours of debate than those which were expended on the previous Finance Bill, which was not subject to a timetable motion.

Mr. John Townend: Does my right hon. Friend agree that having Finance Bills as large as the one that is before us is not satisfactory? Will the Government consider in future separating the main Budget proposals and having a relatively shorter Bill, and having a technical Bill dealing with anti-avoidance measures, which the Inland Revenue introduces every year? Would not that be a much more satisfactory approach?

Mr. Portillo: That very question had been raised only shortly before my hon. Friend entered the Chamber, during consideration of one of the amendments. My hon. Friend the Financial Secretary explained that it was not the Government's wish to operate in that way.
Bearing in mind what has happened during consideration of the Bill, I think that my hon. Friend the Member for Bridlington (Mr. Townend) will find that the matters considered technical were not matters on which the Committee found itself wishing to spend a long time. Taking all matters together—the technical and the more political—did not inhibit the smooth discussion of the Bill. I would be in some difficulty to find instances in which not


separating out technical and political matters caused difficulties for the Committee. In practice, I do not think that the Committee found itself in those difficulties.
My right hon. Friend the Member for Kingston upon Thames brought in an extremely brave Budget at the beginning of 1993. It was one which took seriously the problem of the public sector borrowing requirement and demonstrated beyond doubt that the Government would ensure that that borrowing requirement was tackled. My right hon. Friend was proceeding at a time when it was not at all evident that the recovery was under way. He therefore had to be cautious about introducing taxes in the early part of 1993. What he established was a wedge of increasing revenue for the years ahead, and it is some of that wedge that came into play in April 1994.
The effect of my right hon. Friend's Budget in March 1993 was to convince the markets that the Government were entirely in earnest about tackling the public sector borrowing requirement. As a consequence, through 1993, even though we were borrowing at a rate of about £1,000 million a week, we saw short-term interest rates fall, and we saw long-term interest rates also fall. The impact of that on the recovery is important. If the opposite had happened —if interest rates had been rising—the recovery would have been put in jeopardy.
What the Government did was to ensure, even at a time when it was unwise to introduce the tax increases, that the markets were reassured that we would take action. They set out the precise course and the exact taxes that would be increased. In the process, they took a number of political risks. But taking those political risks was worth while, because it showed the markets that we meant business.
In the March 1993 Budget, my right hon. Friend also had to take some decisions on indirect taxes which would have an impact on the retail prices index. That required considerable courage at that time. It is interesting to reflect now on how much lower inflation is today than we were predicting one year ago. Inflation has stayed very low. The retail prices index, excluding mortgage interest payments, is at the lowest level since 1967, and the headline rate has been below the European Community average since August 1991.
Today, we see that the underlying inflationary pressures are very weak: factory gate inflation is at the lowest level since 1973 and businesses are keeping their costs under control. The recent underlying earnings growth is the lowest that it has been in 25 years.

Mr. Ian Taylor: Is not the point about taxation that, if the two Chancellors of the Exchequer had not wisely raised taxation in 1993, the debate now would be about how much taxation we would be forced to raise this year? In other words, we cannot avoid the problem. Indeed, if the taxation rates had not been increased in 1993, we would not have had interest rates down to the present level, because the markets simply would not have accepted that the Government were serious about borrowing, and there would therefore be other pressures in the interest rate market.

Mr. Portillo: My hon. Friend is absolutely right. When the Government make wise decisions, the difficulty is to prove the existence of the dog that did not bark. There was no funding crisis in 1993. lnterest rates were not rising; they were falling, despite the pressures that the Government were imposing on the market through their

level of borrowing. I simply remind my hon. Friend that the Government have taken action to solve the public sector borrowing requirement problem not only by increasing taxes but, more importantly, by decreasing public spending.

Ms Eagle: I thank the Chief Secretary for giving way again; he is very courteous. I listened to what he said about the political courage demonstrated by his Government in raising the massive tax revenues in 1993. Surely the economic situation that the Government would face was obvious before the 1992 election. Would it not have been much more courageous therefore for the Government to take these difficult decisions before the general election rather than after it?

Mr. Portillo: What was evident in the early part of 1992 was that there was a substantial public sector borrowing requirement, but it was not evident that it would be anything like the £50 billion which was subsequently predicted. In the early part of 1992, we believed that the recovery would begin strongly and proceed apace.
It was not only the Government who had those views; they were shared by independent forecasters and by the Labour party. If they were not shared by the Labour party, it is inexplicable that the Labour party was planning massive increases in public spending. If it knew all the time what no one else knew—that the public sector borrowing requirement would be larger—how on earth could it have been responsibly proposing that public spending should be massively increased?
I should like to know from the hon. Member for Wallasey (Ms Eagle) or the Opposition spokesman whether the reason was that the Labour party was all-knowing. Was it that it had knowledge that no one else had, and yet it persisted with its irresponsible plans to raise public spending, or was it that it shared the views of all the experts and the Government, which was that the recovery would shortly begin and that it would be strong, and that the public sector borrowing requirement would not reach anything like the heights that it has subsequently reached?

Dame Elaine Kellett-Bowman: Is not my right hon. Friend being unduly modest in his sunshine list, because he did not add the excellent unemployment figures which were released today? Those figures show that unemployment is down 0·2 per cent. nationally and—we usually lead the way—down·3 per cent. in Lancaster. My right hon. Friend also did not give the superb figures, to which he referred obliquely, for the public sector borrowing requirement. Such figures were unheard of one year ago; he could not possibly have forecast them.

Mr. Portillo: My hon. Friend is absolutely right. It may not seem like it, but I am still on paragraph one, and I intend to reach some of those points in a moment.
It is worth dwelling on the importance of our success with inflation. It is worth reminding people that keeping inflation down is a vital objective for the Government. We are firmly committed to a monetary policy that will maintain downward pressure on inflation. We will not let up on our achievements so far, and we will ensure that we meet our targets in the future.

Mr. Thomas Graham: Is the Minister telling the House that the massive increase in domestic fuel bills will keep inflation down? Is he aware that low-paid workers and the


unemployed are suffering dramatically because of the huge indirect taxes that the Government have imposed? How in God's name can he hold his head up and say that the Government are helping ordinary men and women?

Mr. Portillo: Since privatisation of the electricity and gas industries, prices have fallen either in real terms or, in some instances, in cash terms. The hon. Gentleman will remember that, in the Budget, my right hon. and learned Friend the Chancellor announced a package of assistance not only for those on low incomes but for all pensioners, whatever their incomes might be. What has made old people suffer is not the fact that taxes have been increased but the fact that Labour sought to scare them about the scale of the increases. We are talking about increases of about £1 a week. The Government have provided compensation which, in large measure, pays for those extra increases. What Labour have done is to spread an idea that the increases will be vastly greater than they are.
I warn the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) that that will rebound on the Labour party, because, when people discover that they have been misled by the Labour party's black propaganda, they will be angry. To scare old people in the way that the Labour party has done is unforgivable, and they will turn on the party that has perpetrated it.

Mr. Clive Betts: Can the Chief Secretary respond to a constituent of mine who wrote to me the other day saying that, first, the 70p that he would receive in additional pension would not compensate him for his increased fuel bills and, secondly, because he had a small occupational pension and therefore paid income tax, he would be taxed on that 70p as well? Have the Government taken into account the increase in income tax that they will receive from this process when calculating the compensation that will be paid to people in that situation?

Mr. Portillo: I presume that the hon. Gentleman realises that, if the public sector borrowing requirement is reduced and more revenue is raised, someone must pay for that. The Government have never shied away from saying that taxpayers will have to pay. However, they have ensured that people on low incomes are compensated to help them to meet their extra fuel bills. We have gone much further than that by compensating all pensioners, whatever their incomes may be, to help them with their extra fuel bills.
The hon. Member for Sheffield, Attercliffe (Mr. Betts) is saying that pensioners who are not only not living on income support but who also have an extra income on which they pay tax should also be compensated for the tax that they must pay on the increase. That is not reasonable from the hon. Gentleman's point of view. If he reflects on it, he will see that it is not a sensible proposition. The economy is growing. There now have been seven quarters of growth, and gross domestic product rose by 0·7 per cent. in the last quarter of 1993. It rose by 2·5 per cent. on a year earlier. Many other encouraging figures tell us that the recovery is spreading from one sector to another.
Manufacturing output is up, and exports to countries outside the EC have risen by 11 per cent. Retail sales are at a record level—a level which has never been achieved before—and new car registrations are up significantly.

That is important, because it shows that consumers are gradually having the confidence to make longer-term spending commitments, and that can be seen also in the rise in consumer credit.
As my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) said a moment ago, unemployment has fallen by 30,000 in March. It has fallen by 250,000 since the end of 1992, and vacancies are still at a high level. The unemployment rate is below the EC average.
I mention that because the hon. Member for Peckham (Ms Harman) and the hon. Member for Dunfermline, East (Mr. Brown) are keen on saying that they want to solve the problem of unemployment, and that, if they solve that problem, they will solve the problem of the public sector borrowing requirement. Yet the magic socialist formula which they would employ to drive down unemployment and to bring about recovery is not available to the socialist Governments around Europe.
I remind the House that our rate of unemployment is below the EC average and that the Spanish rate of unemployment—when last I looked—was 22 per cent. If there were some magic socialist formula to bring down unemployment and to bring about recovery—rather than to bring about recovery and to bring down unemployment—would it not be likely that the Spanish socialist Government would be using it? If the Labour party has some secret, why is it so mean as not to share it with the socialist Governments in Europe so that they can put it into practice?

Mr. Hoon: The Chief Secretary's case appears to be that there is a massive upturn in consumer confidence in the United Kingdom, and that the Government are taking advantage of that. If that is the Government's position, why did the Chancellor tell the Governor of the Bank of England in January that he was much less sure that the pace of growth had picked up significantly in recent months? In March, the Chancellor told the Governor that anecdotal evidence did not suggest that activity was growing strongly.

Mr. Portillo: The hon. Gentleman has completely misrepresented what I said. I said that new car registrations showed some sign of an increase in confidence among consumers who were willing to commit themselves to long-term decisions. I did not say that there had been a massive resurgence in consumer confidence. We know from surveys that confidence is relatively delicate.
We know that people making business decisions have felt the return of confidence, and that most people in business think that the recovery has now reached their sector. In time, the confidence which is felt by the people who are making decisions in business will ripple out to employees and to consumers, and that will be felt throughout the economy. However, there is absolutely no point in pretending that the recovery has been faster or has progressed further than it has. I am making no such pretence. I do say that all the signs are very good.
We have had another example of the Opposition wishing to talk the recovery down. We know perfectly well that the recovery is on track, but we have never made grandiose claims about its size or pace. This is not a technicolor utopia. We are concerned about having a recovery which is sustainable, and which is compatible with low inflation.


The people who really matter—business men and investors—have confidence in the Government's economic policies, and this Bill is at the very heart of those policies. The themes of the Government's approach are the fixity of our purpose, the clarity of our economic policy and the transparency of the decisions which we make. We want sustainable non-inflationary growth to make the people of this country better off. Growth is not an end in itself—it is worth having only if it enables living standards to rise, and that means keeping inflation well under control.
If inflation returned, it would bring all the old evils with it. There would be an arbitrary redistribution of income within our society, a distortion of investment decisions and all the pain that is inevitably involved in having to cure inflation again by adjusting interest rates and by the recessionary forces which then come about.
Non-inflationary sustainable growth is our aim, and that must be based upon sound public finances. If we do not have sound public finances, we will pile up levels of borrowing, the interest on which must be paid by future generations. It is no part of the Conservative Government's policy to pass a burden of debt down to our children. That debt repayment burden which is now being faced by so many countries diverts resources from productive investment and threatens recovery by undermining confidence.
The Conservative principle of sound public finance is embodied in the Budget and in the Bill. We have projected to reduce the PSBR to zero by the end of the decade.
We also place emphasis on making our economy perform better and making reforms to the supply side of the economy. Free markets allocate the resources best to where they should be used, and where they can produce the best result. Interventionist policies, on the other hand, are a sure recipe for economic sclerosis. The Government are proud to be taking further measures to improve the way in which the economy works.
We are privatising British Coal and British Rail. We are making sure that incentives operate well within the economy by the changes and reforms which we are making to invalidity benefit with the introduction of a new benefit called incapacity benefit. We will also introduce in due course a job seeker's allowance to make sure that there are clear incentives for people to work when they are able so to do.
We have a clear destination in terms of where we wish to lead public finances, and we have set ourselves a series of milestones along the way. We have announced clear public inflation targets, and we are willing to be judged on the basis of those. We have set out firm public spending ceilings. It is our aim to make sure that the rate at which the new control total for public spending rises is kept below the trend growth rate in the economy. We took £10 billion off of our earlier public spending plans by the decisions made in the Budget, and the new control total of public spending is set to grow by an average of 0·25 per cent. in real terms per year for each of the years between now and 1996–97.
We are open in discussing our economic policy, and we have set it out clearly. The Chancellor has taken further steps to make sure that his monetary policy is transparent. We have now published—as has been mentioned in the House—the minutes of the monthly monetary meeting. We have established an independent panel of forecasters to display a range of views about future inflation and economic conditions.
We have already set about publishing the monthly monetary report, and we have made the Bank of England independent to the point that it is able to decide the timing of interest rate changes. We have made clear to the world the indicators which we will take into account before we make decisions on monetary policy. In making the changes, the Chancellor has tried to make it absolutely clear to everyone that our interest rate decisions are to be taken for the only good reasons there are—that is, economic reasons—and not for political reasons. He will take decisions about interest rates based on features of the British economy, and not of any other economy.
The Government's economic policy has a clear pattern. It is based on fixity of purpose, clarity and transparency. We have established in the economic field a rhythm of good decision-making which has led to a resurgence of confidence. The Bill is vital to that process. It protects non-inflationary growth by helping to sustain sound public finances in a way which does the minimum of harm to incentives and to the operation of the markets. That is essential if the Government are to meet the Budget objective of lowering the PSBR by £6 billion in the current year, 1994–95, in comparison with the projection that we made before the Budget. We will do that without affecting marginal income tax rates and without raising the rate of taxation on business.
I remind the House that the Bill is not just a catalogue of tax increases; it carries forward the process of building a tax system that fosters wealth creation. The new enterprise investment scheme—which encourages "business angels" to put their management skills as well as their money into the new small companies that are the basis of future economic development—won considerable praise from all parties in the Standing Committee.
We have introduced some new taxes, to which the right hon. Member for Berwick-upon-Tweed (Mr. Beith) referred: the insurance premium tax and the air passenger duty. We have introduced them, however, in areas that—in comparison with practice in other countries—have arguably been under-taxed in the past. We are therefore ensuring that the tax burden is spread as widely as possible. Let me also remind the House that we have introduced rules allowing and promoting self-assessment in regard to tax.
The measures in the Bill are fair: the extra burden of tax that it has been necessary to raise has been spread evenly across the pattern of income distribution. That has been backed up by one independent survey after another. We are confident, therefore, that these measures will not damage the progress of recovery.
We have been careful to phase the tax increases to ensure that. Some of the impact of extra taxes was felt some time ago: excise duties were increased around Christmas. Other tax changes were introduced this month, and the two new taxes that I just mentioned will not come into force until the autumn. As I have said, we have spread the impact. My guess is that press expectations about the tax changes currently coming into effect greatly overplayed the impact that those changes will actually have on people's spending patterns, wage packets and salary slips. The recent impact on consumer confidence has been based not on actual experience of what tax rises are likely to bring, but on press reports and media speculation.

Mr. Beith: The Chief Secretary has just made a very significant point. He suggests that the largest collection of


tax rises to occur in modern times has been spread in such a way that its impact on individuals will be much less than they have been led to fear, and that any disincentive effect on their willingness to work harder will therefore be very slight. Is he not opening the way to more tax rises generally, on the ground that they are never as bad as they are expected to be?

Mr. Portillo: The right hon. Gentleman knows perfectly well that Conservative Members believe in reducing taxes when that is prudent. Conservative Members do not attempt to advance any general argument in favour of raising taxes. But, when driven by fiscal prudence to introduce higher taxes in order to reduce public borrowing, our party takes care to ensure that the impact on incentives is minimal, and that phasing is sensible, so that the minimum damage is done to the process of recovery.
The Bill confirms the policies that I have described. It adds to the credibility of those policies, and will therefore increase confidence. Today, we have seen new figures showing that in 1993–94 the public sector borrowing requirement—at about £46 billion—was some £4 billion lower than the level that we predicted. That, clearly, is in itself good news, but I am the first to add that the PSBR is still the highest that we have ever had, in cash terms.
In the single month of March, the Government had to borrow £l1 billion, the largest amount that has ever been borrowed in any single month. Total borrowing for the year still amounts to £900 for every man, woman and child in the country. That does not lead me to alter our earlier forecast for the PSBR in the current year—about £38 billion. It is right to celebrate good news when it comes, but I do not believe that the figures suggest that any change in Government policy would be appropriate.
The most significant factor in the achievement of that lower figure is not higher than expected tax receipts, but greater discipline in central Government spending and increased debt repayment by local authorities. Those factors cannot necessarily be repeated, and I therefore have no reason to believe that Government policy is in any way inappropriate at present. I believe that our current stance, and our determination to lower public sector borrowing on the course that we have set, should remain unchanged.

Mr. John Townend: I agree that the undershoot of £4 billion in the PSBR is very good news, but is not my right hon. Friend rather worried about the size of the increase in March—£11 billion, as he has just told us? That is by far the highest increase in any month. Is not one of the problems the fact that, in national government—I found the same in local government—in the last month of the financial year each Department tries to spend every penny that it has so that it is fully spent up to its budget? If we could control that, could we not lower the PSBR by even more?

Mr. Portillo: As my hon. Friend knows, the PSBR is the difference between two large amounts—receipts on the one hand, and spending on the other. The pattern is fairly well established, February and March generally being the largest months in terms of the PSBR.
My hon. Friend has a point: there is an element of "spending up" at the end of the year. I deprecate that, and intend to bring the greatest possible pressure to bear on it.

My hon. Friend will, however, appreciate that other factors are involved. There is nothing unusual about seeing a dip in the earlier part of the financial year, and the largest amounts towards the end.
If the policies that I have described make the Government's economic strategy perfectly clear—along with the fact that we are now seeing the benefits of recovery and of sustained low inflation—let me ask the House to consider what alternative has been presented by the Opposition. How have they measured up to the test of clarity and decisiveness that I have set this afternoon?
It may be news to the House that the hon. Member for Peckham is responsible, on behalf of the Opposition, for the control of public spending pledges. How has she done in that regard? As far as I am aware, there is not a single instance of the hon. Lady's overruling any of her hon. Friends in connection with any of their promises, pledges and proposed schemes, whatever the expense involved.
Sound public finances are what we demand from the hon. Lady; what we have had is the sound of public flannelling. The hon. Lady aspires to be the guardian of the nation's coffers, but the amendments that she tabled demonstrate that she is as committed as any other member of the Labour party to higher public spending and borrowing.
That is especially notable, given that the hon. Lady was not a great contributor to our debates in the Standing Committee. [Interruption.] I showed a strong sense of delegation, but, even by the high standards that I set, the hon. Lady managed to delegate a considerable amount of the work to others. None the less, she was associated with amendments all of which would have increased public spending and borrowing. For example, her amendment to what was clause 28, on air passenger duty, would have raised the PSBR by £115 million this year and by £330 million next year.
It might be thought that, if the hon. Lady did that in one amendment, she must have balanced it in another. Then, however, she tabled new clauses 1 and 2· Did those clauses offset her proposals for air passenger duty? No: they were designed to postpone the introduction of VAT on fuel and power, and would have raised public sector borrowing by £1 billion.
As the hon. Lady is honest and straightforward, one would have assumed that she would find some other way in our debates to balance her proposed increases in the PSBR. But she tabled amendments to clause 72 to increase tax allowances and restrict the married couple's allowance to 25 per cent. rather than reduce it to 20 per cent. Those amendments would have increased the PSBR by £2 billion this year and by £3 billion next year. She tabled amendments on capital gains tax which would have jeopardised a full £3 billion of revenue from that tax.
Throughout proceedings on the Bill, the Opposition's approach to public finances has been to find ways to reduce the Government's revenue and increase the PSBR.

Mr. Calum Macdonald: If the Chief Secretary is the strict guardian of public finances, will he explain why the Government are this year abolishing sporting rates in Scotland? That measure will exclusively benefit large estates, but it will cost the Exchequer £2 million. In this climate of financial straitjackets, how is it that Scottish landowners can receive a handout of £2 million?

Mr. Portillo: No doubt the hon. Gentleman will want to pursue that matter with my right hon. Friend the Secretary of State for Scotland.
If what I have outlined is the Opposition's approach to public finance, what about their sense of purpose? One would think that Labour had at least clear policies that it would consistently follow in our debates. Writing in the Labour party's London Forum document as recently as September 1993, the hon. Member for Peckham said:
Mortgage interest tax relief should be phased out for existing borrowers.
We assumed that during the progress of the Bill Labour would table an amendment to put flesh on the bones of that proposal. But the hon. Lady's proposed amendment to clause 74 would have kept mortgage interest relief higher than the Government now intend, and that would have cost £1 billion this year and £2 billion next year. Labour is guilty not only of hopeless incompetence but of hopeless inconsistency.

Ms Harman: Not only do hon. Members and people outside not believe what the Chief Secretary and his Treasury team say about their plans, but they believe that they cannot be trusted to tell the truth about what we have said. The quotes that the right hon. Gentleman attributed to me are certainly not mine. Whatever document he is talking about it was certainly never published. It is a scurrilous attempt to divert attention from the Government's betrayal of election promises.

Mr. Portillo: If the hon. Lady has not heard of the Labour party's London Forum with which her name is associated and which produced the document from which I have quoted, the degree of disorganisation in the Labour party is even greater than I have been led to believe.

Mr. Michael Stern: My right hon. Friend has listed the amendments that were tabled in Committee by the hon. Lady and her colleagues and the cost of them. Will he look at what it would have cost the Exchequer if the Government clauses to save money and against which the Opposition voted had been lost? Perhaps my right hon. Friend could write to members of the Committee about that.

Mr. Portillo: That will be a most interesting piece of research, and I shall be happy to contribute to it. My hon. Friend is right to add to the examples of—

Dame Elaine Kellett-Bowman: Profligacy.

Mr. Portillo: I thank my hon. Friend—of which Labour was guilty in Committee.
The contrast between the two parties could not be more substantial. We have set out the path by which the public sector borrowing requirement will be steadily reduced towards balance. It will be close to zero in 1998–99. By 1997–98, the public sector current account deficit will have been eliminated. Throughout the period ahead, public spending as a proportion of our national income will be reduced. The net public sector debt to GDP ratio will peak in 1996–97 and reduce thereafter.
The reference values that are set out in the Maastricht treaty requiring that the general Government financial deficit to GDP ratio should be lower than 3 per cent. will be met by 1996–97, and the reference value on debt itselfx2014;the proportion of general Government debt to GDP— should be lower than 60 per cent. That reference value will never be breached at any time in the coming year.
Our objectives for the economy, for spending and for borrowing are clearly set out. In Committee, Labour said nothing about what its policy would be. There have been nothing but infantile attempts to drive up the PSBR, and Labour has said nothing about the way in which it would guide the economy. There has been nothing but irresponsibility by contrast with the Government's transparent purpose of bringing our economy forward during a time of recovery and sustained low inflation.

Ms Harman: The Bill is a milestone. In years to come it will be seen as marking a defining moment in the course of British politics. It is the moment when the truth about taxes has finally caught up with the Conservative party—the truth that the Conservatives have broken their promises; that their party is not the party of low tax but the party of unfair tax; and that their failure to cut taxes is because of their failure on the economy. People now know that on taxes and the economy they can never again trust the Tories.
The Bill also marks failure and betrayal. On the Chief Secretary's own admission, the Conservative Government who before the election offered a successful economy have failed—and the price of that failure is to be paid through the tax increases in the Bill.

Mr. John Townend: The hon. Lady is fulsome in her attacks on the Government for increasing taxation. Does not she agree that if the Government had not increased taxation in the Budget the alternative would have been to cut public spending? But every time the Government try to do that Labour criticises them and offers more and more proposals for increasing public spending. Is not the whole of the hon. Lady's policy hypocrisy?

Ms Harman: It is hard to keep up with the hon. Gentleman. He stood and cheered when the Chancellor sat down after his Budget speech, but a month later he complained about it. Do we understand from his intervention that he is now back in favour of the tax increases? If he is, the Chief Secretary will be glad to have him as an ally once again.
There have been two Budgets since the Tories won the last general election—two Budgets of failure and betrayal. As the economy struggles into recovery—and we hope that it will recover—confidence in the Government slumps. The Chancellor, who replaced the one who was sacked for lack of credibility, now has himself no credibility. Why should anyone believe anything that the Chancellor says? First, the Tories promised to cut taxes. But they put them up, and the Chancellor said that they never actually promised to cut them. Of course they did.
In the Chancellor's personal election address, he told his constituents:
Only the Conservatives believe in keeping taxation down.
The Chief Secretary to the Treasury told his constituents in Enfield in his election address:
The Conservatives want to cut your taxes.
How is that for fixity of purpose, Mr. Deputy Speaker?We have had something new. We have had the Conservatives' objectives, not met; their intentions, not achieved; their aims, unfulfilled; and now we have something new on the political agenda—it is never delivery on their promises. Now we are offered a fixity of purpose.


The Chief Secretary to the Treasury demonstrated fixity of purpose when he told constituents at Enfield, when asking for their vote:
The Conservatives want to cut your taxes".
The Financial Secretary to the Treasury, in his election address, told his constituents, no doubt showing the same fixity of purpose:
We promise to hold taxes low".
However, the truth has caught up with the Tories on their claim to be the party of low tax. The Conservative party is no such thing. The burden of direct and indirect taxes on a family on average income in 1978–79 was 32·2 per cent. This year, the total tax burden on that family will be 35 per cent. of their income.

Mr. Ian Taylor: The hon. Lady rehearsed by quoting from those election addresses in Committee. Given that the public sector borrowing requirement was nearly £50 billion, what would the hon. Lady have done? [Interruption.] Would she have left taxation as it was, or would she have cut public expenditure or increased borrowing? We need to know an answer to that if she is seriously involved in the debate.

Ms Harman: The people in the country and the hon. Gentleman's electors need to know why the Conservatives failed to tell the truth before the last election; why they promised to cut taxes and put them up; why they promised to be the party of sound public finances and achieved record public borrowing.
The Chief Secretary only—

Several hon. Members: rose—

Ms Harman: I will press on for a few moments.
The Chief Secretary to the Treasury spoke at some length about the effect of the tax increases on the markets. He mentioned the tax increases on business and spoke about them at some length. He mentioned the tax increases and the effect on the incentives for the highest paid people. Yet he hardly spent any time speaking about the big issue of concern throughout the country—the effect of the tax increases on ordinary taxpayers—except to say that £10 a week in extra taxes, £500 a year extra taxes, from a Government that promised to cut taxes, is insignificant.

Mr. Tristan Garel-Jones: The hon. Lady spoke of this Finance Bill, and of this Budget being a defining moment. Can she recall a single Finance Bill or Budget in the past decade when the Opposition's strength of feeling about that Budget has been so great that they were unable to keep the debate going in the time allotted to it?

Ms Harman: The right hon. Gentleman makes a trivial point, which the—

Mr. Garel-Jones: indicated dissent.

Ms Harman: Yes; because the issue of concern for many people up and down the country, who feel a real sense of betrayal, is how they will find the extra money they will have to pay in taxes to a Government who were specifically elected on a pledge to cut taxes.
Although the Chancellor of the Exchequer and the Chief Secretary might try to sweep the truth under the carpet, the truth has caught up with the Tories in the newspaper headlines. Let me quote some of them:
Tories admit: you paid less tax under Labour".
That is from The Independent on Sunday.
Tax burden on families to hit record levels, Treasury warns ministers".
That is from the Sunday Times.
We tax more than Labour, Tories admit".
That is from the Sunday Telegraph. From The Sun we hear:
The Chancellor can't deny the Tories are taking a greater slice of your income than Labour did".
The truth has caught up with the Tories, and people see it not only in their newspaper headlines, but in their pay packets. They see it not only in the newspaper headlines, but in their gas and electricity bills, and in their mortgage payments.

Mr. George Walden: The hon. Lady has been the object of brutal—I should have thought rather hurtful—attacks by my hon. Friends about Labour spending pledges, so I should like to come to her defence by giving her an opportunity to endorse the wise, honest and frank reflections of her hon. Friend the shadow Secretary of State for Social Security, the hon. Member for Glasgow, Garscadden (Mr. Dewar), about the future affordability of the old-age pension. I am giving her a chance to endorse his sober and sensible reflections on that subject, and show herself to be realistic about future levels of public spending in this country.

Ms Harman: I endorse the comments of my hon. Friend the shadow Secretary of State for Social Security. He is anxious that we should have an open, honest and straightforward debate, which has at its heart the interests of pensioners now and in the future. That was at the core of his concerns.
The truth is catching up with the Chancellor, as nervous Tory Back Benchers mutter against him behind their hands in the Tea Room. Those who hailed him—[Interruption.]—as a hero in November and waved their Order Papers when he sat down at the end of his Budget speech—where are they now? Those who hailed the Chancellor as the next leader—where are they now? The Tory Back Benchers certainly do not support the Chancellor now. The welcome party for the Budget in November has become a wake for the Finance Bill in April.
The hon. Member for Bridlington (Mr. Townend), who intervened earlier, the Chair of the Tory Back-Bench Finance Committee, is one of the hon. Members who stood and waved Order Papers after the Chancellor's Budget. We know that, because he told us. In the Budget debate, he told the House proudly:
I was one of those hon. Members who cheered at the Budget… I congratulate the Chancellor and the Chief Secretary on their efforts".
He looked, misty-eyed, to the future and said:
I think that the Budget will go down as the most important of this Parliament".—[Official Report, 7 December 1993; Vol. 234, c. 171 & 176.]
I agree with him. How right he was, but for rather different reasons than he expected.
Soon the congratulations turned to complaints.

Mr. John Townend: rose—

Ms Harman: By 23 January 1994, the hon. Member for Bridlington, who is rising to intervene, was complaining loudly and publicly. Gone were the congratulations. Instead he was saying:
If we lose our claim to be the party of low taxation we lose a critical asset".
The Chancellor who was hailed as a hero is now blamed for failure. I notice that the Chief Secretary praised the previous Chancellor fulsomely; however, he did not praise the current Chancellor—no doubt because he wants to be the next one himself. Although the Tories have lost for ever their claim to be the party of low tax, they remain true to their instinct for unfair tax. No doubt the Chief Secretary is hoping to take advantage of the lack of credibility that the Chancellor now has. As The Sunday Times delicately put it, the Chancellor's reputation is
in the gutter along with the Prime Minister's popularity".
Although the Tories have completely abandoned their fixity of purpose for low tax, they remain true to their instinct for unfair tax.

Mr. Townend: This is an important Budget. It is a Budget that would not have appeared under a Labour Government; a Budget that sets out a strategy to reduce the public sector borrowing requirement to zero. I stand by what I said: if the Conservative party in the long term becomes a party of high taxation, we are finished—but we will not become the party of high taxation. It is our policy to reduce taxation. I forecast that, by the next election, taxes will be down again.

Ms Harman: The hon. Gentleman has failed to ask himself who increased the public sector borrowing requirement in the first place. The Chief Secretary to the Treasury was wrong to say that this Budget and the Government's taxation policies are fair, because the Tories are unfair when it comes to tax. When they gave out tax cuts in the 1980s, they gave most to the richest.
Now that it comes to panicking and taking them back, they take most from middle and low-income families. The top 1 per cent. of earners, with incomes of more than £120,000, had 30 per cent. of the tax cuts, but are paying only 4 per cent. of the tax rises. Only those on £64,000 a year or more are paying less tax than they would have been in 1979. Everyone else is paying more.
The growing burden of taxes on spending hits hardest those who can least afford it. This year, a family on average earnings will pay £1,140 in VAT—nearly 6 per cent. of its income. That is nearly twice as much VAT as it paid under the last Labour Government, and the Chancellor has said that his instinct is to extend VAT still further.
While the Government clobber those on middle and low incomes, they fail to close the tax loopholes that allow the super-rich to get away without paying their fair share of tax. Some £110 million in tax-free executive share options has gone to the directors of privatised electricity and water companies alone. That is just one of the many tax loopholes which the Government have failed to close in the Bill.

Mr. David Willetts: If the hon. Lady is so keen on closing tax loopholes, why did she vote against the clause that dealt with the abuse whereby people were paid in gold bars? Why did the Labour party oppose ending that abuse?

Ms Harman: The hon. Gentleman could not know about our objections to that clause, because the guillotine

prevented debate. Our objection was that the Bill did not go far enough in closing that tax loophole, and we tabled a new clause that went further than the one which the Government finally and reluctantly presented.
The Tories' priorities were clearly demonstrated in Committee. There was not an empty seat on the Tory side when we discussed the rights of accountants, whereas glazed eyes and cynical disinterest greeted the points raised about how tax affects ordinary people. Tories argued heatedly among themselves when we debated the effect on top rate taxpayers of changes in capital gains tax, but they showed indifference when we debated how the lowest earners will suffer from tax rises.
The Tory members of the Finance Bill Committee well represented their party's true interests. They spoke animatedly and at length when they had financial vested interests as directors or consultants to commercial organisations, but were silent as their Government put up taxes and made a mockery of their election addresses.
We did not, however, have silence from the hon. Member for Dover (Mr. Shaw), who, unfortunately, is not here today. The Chair of the Committee had to rebuke him three times for shouting. He was protesting that it was out of order for me to remind the Committee that he had promised to cut the taxes of his Dover constituents.
The truth has finally caught up with the Tories. People are dismayed at the extra taxes they must pay, and angry because the Government are throwing good money after bad. It is not as if the tax increases will fund a transformation of the national health service, the modernisation of our railway system or investment in education. People know that, while the Tories are raising taxes, they are cutting public investment. Since 1979, investment in schools, hospitals and transport has been cut by more than a quarter as a percentage of gross domestic product. Those tax increases are to pay not for investment in the future but for the Tory mistakes of the past.
What the Government have not lacked in the past is public money: £118 billion in North sea oil receipts have been wasted; and £55 billion in privatisation receipts have been squandered to pay for the dole queue. Unemployment now costs every family in the country the equivalent of £20 a week. Every unemployed person costs £9,000 a year in benefits and lost taxes. Since 1979, unemployment has cost the nation £280 billion, and the Government are now taking money out of people's pay packets and taxing pensioners' fuel bills to pay for their borrowing to finance the dole queue.
The Chief Secretary to the Treasury admits that the Conservatives are not the party of low taxes, but says that, first and foremost, they are the party of sound public finance. But they are not, any more than they are the party of low tax. As the Chief Secretary was forced to admit, today's figures show that this year's borrowing has topped £45 billion, which is the highest PSBR in UK history. It is more than was ever borrowed by the last Labour Government. Last year, central Government borrowing amounted to 7.5 per cent. of GDP, compared with only 5 per cent., which was the highest level of borrowing as a percentage of GDP under the last Labour Government.
Moreover, for the first time since records began, the Government have broken the golden rule on Government borrowing—

Mr. Portillo: The hon. Lady's figures do not compare like with like.

Ms Harman: I am comparing like with like. I am not comparing investment in the nationalised industries but looking at central Government borrowing, excluding local council borrowing. That 7.5 per cent. of GDP that the Government are borrowing is entirely accounted for by what they are spending. But they are not investing. For the first time since records began, they have broken the golden rule on Government borrowing, which is not to borrow more than they publicly invest. More than half the PSBR now finances current expenditure. How can that be "fixity of purpose" from "the party of sound public finance"?
The Government have failed on public finances, because they have failed on the economy. People can see with their own eyes what is happening in the economy. I admire the brass neck of the Chief Secretary, who, in one and the same speech, says, "We are entitled to put taxes up and breach our election promises, because we got it entirely wrong about the economy in 1992 and thought that a recovery was coming, but it was not. But, actually, a recovery is coming now." Why should anyone believe anything that the Government say about the economy? People believe what they see with their own eyes.

Mr. David Nicholson: The hon. Lady draws attention to the cost of unemployment. I hope that she accepts that Conservative Members want to reduce the cost of unemployment and the unemployment figures. Why does she not refer to the drop of 250,000 in the unemployment figures in the past 15 or 16 months? Why does she not answer the point made by my right hon. Friend the Chief Secretary that, in all the countries of Europe currently or previously under socialist Governments—Spain is currently under a socialist Government, and France had a socialist Government until recently—unemployment is higher? What magic solution does the British Labour party have which those countries have ignored?

Ms Harman: We remember only too well the Government saying that unemployment was a price worth paying. It is simply no good the hon. Gentleman saying that it is worse everywhere else, because people know from their experience that the British economy is falling behind. Comparable figures on growth, employment, manufacturing output, exports and skill levels—all important economic indicators of the underlying strength of the economy—show that the Tories have allowed this country to fall behind.
Since 1979, our growth rate has been lower than that of the US, Japan, Canada, France, Germany and Italy. Those are the countries to which we should compare ourselves, whereas the Chief Secretary compares us only with Spain. While, since 1979, employment has grown in those countries, it has shrunk here. Since 1979, we have had the lowest rate of export growth of any major industrialised country. We have the lowest levels of skills of any major industrialised country.
The Conservative party said that it stood for low taxes, and put taxes up. The Conservative party said that it stood for economic confidence, and devastated our economy. The Conservative party said that it stood for sound public finance, and hit record public borrowing. The Finance Bill has shown the Conservative party to be not the party of low taxes, not the party of economic confidence, not the party

of sound public finances—just the party in office but not in power; a party for which the question of competitiveness means competing leadership candidates.
After this Finance Bill, no one will trust the current Chancellor again. He did not tell the truth at the election. He made promises that he could not keep and then denied that he had made those promises. He did not tell the truth about tax increases and would not tell the truth about living standards. He is still not telling the truth about the economy, but the truth has caught up with him, no matter how he has tried to evade it.
People do not want to hear any more fairy tales from the Government—they want to know the truth. They can trust Labour—[Laughter.] The Labour party has told them the truth about the economy and taxes, and they know that. They can trust Labour to take action to ensure growth, to tax fairly and to invest wisely. People know that, through the Conservative Budgets, they are paying the price of past Tory failures. They know that, for the future, they can look to Labour.

Mr. Christopher Gill: I thank you for calling me so early in the debate, Madam Deputy Speaker. Traditionally, I have stood up on Third Reading of the Finance Bill to draw to the attention of Ministers one of the greatest absurdities of our tax system—the means by which we apparently raise far more money than we need.
I shall explain what I mean by quoting from the Red Book and the published analysis of public expenditure. This year I can do so only on the basis of the figures for last year. I have, on several previous occasions, made a similar sort of speech, but the Treasury has now shot my fox and no longer publishes appendix D to the analysis of expenditure from which I gleaned much of my information.
I can talk only about 1992–93, when thé outturn of the six inland revenue taxes—income tax, corporation tax, petroleum revenue tax, capital gains tax, inheritance tax and stamp duty—amounted to £76.1 billion. For the same year, according to the public expenditure analysis, Cmnd 2219, published in January 1993, the 47 reliefs and allowances against the same six inland revenue taxes totalled £75.8 billion. The net to the Exchequer was almost the same as the allowances that had been made against those six taxes.
I draw two conclusions from that. The tax system is still being used for the purposes of social engineering. If that were not the case, the standard rate of income tax, instead of being 25p or 20p in the pound, would be half that figure. Having made a similar speech on four successive occasions and never having been challenged on that point, I think that I am entitled to believe that I am right.

Mr. Portillo: indicated assent.

Mr. Gill: I thank my right hon. Friend.
As we have more time this year than is customary to discuss Third Reading of the Finance Bill, I should first like to say to the right hon. and hon. Members who served on the Finance Bill Committee that the thanks of the House are due to them for all the hard work, effort, time and concentration that they have put into bringing to the House the 453 pages of the current Bill.
I also want to congratulate my right hon. Friend the Chief Secretary to the Treasury on his positive, robust and


lucid exposition of Government economic policy. I also welcome today's news on the public sector borrowing requirement, which my right hon. Friend said was £4 billion better than originally forecast for the 12 months just ended.
To Opposition Members, I say that the economic indicators for the British economy are good. Interest rates are at their lowest since 1972. The inflation rate in the year 1993 was the lowest for 30 years. Exchange rates are competitive, and have therefore stimulated greater export volumes. Unemployment is trending downwards. The housing market is improving, and there are welcome signs of increasing optimism and activity in the manufacturing sector.
I shall concentrate my remarks on the wealth-creating sector of our economy, and the interface which that has with the Treasury. I also have one or two words of advice for the Conservative party. I wish to talk about the role of Government in the context of today's debate on the Finance Bill.
In that context, the role of Government is threefold. First, the Government must resolutely set their face against adding overhead costs to businesses. Secondly, they must work hard at removing the obstacles to wealth creation that have become enshrined in legislation. Thirdly, they must create the conditions in which business can prosper. In order for business to prosper, we need a fiscal policy that stimulates investment and business activity, and gibes an incentive to people who invest and work in business.

Mr. Beith: In view of the hon. Gentleman's first point, is he satisfied with what the Government have done on statutory sick pay? Many people in business feel that an unreasonable burden has now been placed on them.

Mr. Gill: I shall turn to that point immediately, and shall not keep the right hon. Gentleman in suspense one moment longer. That was exactly what I was about to talk about—the importance of controlling costs on businesses.
We want to minimise the cost burden on businesses, which is why we set our face against the social charter and rejected it. But later tonight, as the right hon. Gentleman knows, the draft Maternity Allowance and Statutory Maternity Pay Regulations come before the House. Their effect will be to reduce the rate of reimbursement for administering and paying statutory and maternity pay benefits from 104.5 per cent. to 92 per cent. By any reckoning, that adds costs to businesses.
It is necessary to contain the bureaucratic burden on businesses. Without a shadow of a doubt, the Government are committed to deregulation. They are soon to bring a deregulation Bill to the House for Report and Third Reading. Consequent on that, a Committee on deregulation will be established in the House. The public expectation is that there will then be a bonfire of controls. But the Finance Bill before us is 453 pages long. It looks as though we are in the business of telling people to do as we say, not as we do.
I was interested to read a snippet in this morning's edition of The Daily Telegraph:
Senior Treasury officials are struggling to restore morale after a confidential staff survey uncovered widespread discontent over the way the organisation is run. Staff complained of … too much bureaucracy.
My right hon. Friend the Chief Secretary may feel caught

in a pincer movement between myself and his officials, who all say that it is vital that we reduce the burdens of bureaucracy.
I invite my hon. Friend to consider just one lesson from the private sector. Any successful business man will know that, to sell a product successfully, one first has to establish a brand image. Opposition Members may say otherwise, but that is the fact of the matter, and you cannot take it away from us. [Interruption.] I am talking to you now.

Madam Deputy Speaker (Dame Janet Fookes): Order. I remind the hon. Gentleman that he should be talking to me.

Mr. Gill: You are absolutely right, Madam Deputy Speaker. I would certainly take greater delight in doing that than in addressing my remarks to Opposition Members.
The Conservative party has a very strong brand image. It has the brand image—

Mr. Graham: Will the hon. Gentleman give way?

Mr. Gill: The hon. Gentleman must wait for the punch line before I give way.
We have a brand image as the party of low taxation. No doubt the hon. Gentleman will challenge me on that point, yet my hon. Friend the Member for Bridlington (Mr. Townend) spelled it out to the House: that we are absolutely determined to get taxes down. I share his confidence that we will do so before the next general election.

Mr. Graham: Does the hon. Gentleman realise that, in Scotland, an opinion poll in a respectable newspaper, the Herald, stated quite clearly that Tory party support was at a mind-boggling 13 per cent.? Is that the brand image that they are creating for the people of Scotland and the rest of Britain?

Mr. Gill: I am about to make two comments that address that very point.
I am not confining my remarks to the sheer fiscal policy embodied in the Finance Bill: I am trying to draw attention to one important factor which affects the electoral prospects of the Conservative party—the need to be consistent.

Ms Eagle: Will the hon. Gentleman give way?

Mr. Gill: I shall finish my point first. I should not have given way to the hon. Gentleman until I had done so, as I shall now have to start from scratch.
The lesson from the private sector is that, for a company to be successful in selling its products, it first has to establish its brand image. I have explained that the Conservative party has a jolly good brand image. Secondly, it must advertise. It is difficult for us politicians, regardless of which side we are on, to avoid advertising. Many Members of Parliament are on television, in the newspapers or on the radio practically every day. I do not indulge in that, as I am a bit of a shrinking violet.
Thirdly, it is essential to have a consistent product. I am not saying anything about the quality of the product, but simply that it has to be consistent.

Ms Eagle: Will the hon. Gentleman give way?

Mr. Gill: I shall give way in a moment, as I have already told the hon. Lady.


One of our difficulties in the Conservative party at the moment is that, on the one hand, we have been promising to deliver deregulation and lower taxes, and on the other hand there have been certain inconsistencies. We have to put right that aspect of our sales strategy. We have the brand image and the advertising; let us concentrate on consistency.

Ms Eagle: I thank the hon. Gentleman for giving way. I am listening with interest to what he is saying, particularly about consistency. At the last general election, in his literature to his local electorate, he said that the Conservatives would reduce personal taxation, yet today we are discussing a Budget which increases levels of personal taxation and indirect taxation to the greatest extent since the second world war. How is that consistent, and will he apologise to his constituents for the record of the Government?

Mr. Gill: Surely the hon. Lady does not need reminding that, in 1979, when the Conservative Government came to power, the top rate of personal taxation was potentially 98p in the pound. The only reason why it was no higher was that, if they had taken another tuppence from those people, there would have been absolutely no point in their working at all.
The Conservative party have proved in government, without any shadow of a doubt—[Interruption.] The hon. Lady can continue interjecting from a seated position for as long as she likes, but she cannot deny that we have brought the standard rate of tax down from 33 per cent. to 25 per cent., with a commitment to reduce it to 20 per cent. We have brought the top rate of tax down from potentially 98 per cent. to 40 per cent., and everyone in the country knows it.
The hon. Lady knows full well that the Conservative party were re-elected two years ago because the Opposition were offering the opposite. We can flog this horse for much longer, but I shall still cross the finishing line before the Opposition.
The Conservative party is criticised for the level of unemployment and for inadequate levels of investment. We know that there is a balance of payments deficit, and reference has already been made to the public sector borrowing requirement.
There is only one way out; we have to trade ourselves out of trouble. That means that we have to recognise—not that we do not already—that trade, commerce and industry are the engine of our economy. We have to recognise the need to keep that engine fuelled and lubricated, and the good sense of allowing business to reinvest the biggest possible share of the profits it generates. That leads to the virtuous circle of ploughed-back profits leading to greater investment, greater competitiveness, reduced unemployment and an improved balance of payments.
I accept that it is not the way that the Opposition parties would go; their policy has always been to tax and tax again. Our policy is to bring taxes down. On that basis, there is no need to pick winners. There is no need for Ministers or Departments to indulge in the fantasy that politicians can pick winners; the winners pick themselves if they are allowed to plough back the profits they generate.
The dynamic of unquoted companies is refuelled by ploughing back the profits. That is because the

entrepreneur, who is invariably ambitious for the continued success of his business, recognises that its growth and development is best served by constantly improving the quality and value of its assets. There is no justification for taxing that seedcorn, which would otherwise be used to grow the business faster, bearing in mind the positive financial benefit to the whole economy of successful businesses making substantial contributions, as they do, to our national coffers by way of national non-domestic rates, pay-as-you-earn, national insurance and social security savings—quite apart from the value of wages and pensions to all those employed in those enterprises.
Conservative Governments since 1979 have demonstrated that lower personal tax rates stimulate higher tax revenues. By the same token, even lower corporate tax rates would stimulate higher levels of business investment and increased competitiveness, to the long-term benefit of employment prospects and import substitution.
Finally, if the engine of our economy stalls, suddenly none of us will be going anywhere. How very much more sensible it is to ensure that the engine is kept not just ticking over, but running at peak revs to generate greater business activity, a more competitive industry and a market for the only product which 55 million people living in these islands have to sell—which is our labour.

7 pm

Mr. Beith: This is an enormous two-volume Finance Bill. We should remember that the Government have had two bites of the cherry because there have been two Finance Bills in the past 12 months, which amounts to five Bills in three years. Presumably the Bill will come in three volumes next time; the growth in the scale of legislation goes on and on.
That raises questions about how we handle finance legislation and this year there has been a change in the way in which it has been handled. For the first time in recent years, a guillotine has been imposed on the Bill. I think that the timetable has worked reasonably successfully. It would have been better if we had been able to make adjustments to the allocation of the time for debate on the clauses as we discovered what was needed. But, broadly speaking, I believe that it has worked reasonably successfully. It has certainly not presented any severe problems and need not have led to a failure to debate important sections of the Bill.
The weakness in scrutiny of the Bill does not result from the timetable; it results from the highly complex and technical character of a large part of the Bill's content. This material does not lend itself to the sort of discussion that we usually have in the Standing Committee. It would be better handled by a Select Committee procedure in which one could question the people who actually know what the Bill is about.
We have a familiar ritual in Finance Bill Committee of hon. Members pressing Ministers about points which neither the Member nor the Minister understands fully. Each is dependent on the notes which are being passed from either civil servants or outside advisers. It is not a sensible way of discussing the most complex parts of the Bill. That is why I support the view that we should have a taxes management Bill which deals with the more complex matters and that that Bill should be handled, at least in part, by Select Committee procedure.


This Finance Bill does not contain only a lot of technical material. It contains tax increases—to which I will refer in a moment—and two new taxes. Neither of the taxes was the subject of consultation. There were no Green Papers about the feasibility of an airport tax and there were no Green Papers about the way in which an insurance tax might be introduced. It was therefore difficult to digest and consider successfully the new taxes while debating the Bill.
The very mechanism by which both taxes will be collected has been changed fundamentally between the Committee and Report stages. In the case of the insurance tax, the rate at which the tax is collected has changed, too. I welcome the fact that such adjustments were made, but they illustrate that this is not a very satisfactory way to deal with completely new taxes.
Neither of these taxes is market-sensitive. People are not able—it would not be a problem if they were—to rush out and take out insurance policies on a grand scale in order to defeat the effects of the Bill. It would have been possible to put out the proposals for consultation before they became taxes. I would have argued, as I did during debate on the Bill, that it was not a good idea to tax insurance and that the airport tax would have damaging consequences for sections of the community.

Mr. Ian Taylor: I share the right hon. Gentleman's view that greater consultation with the insurance industry might have served a purpose. Nevertheless, I would like to correct a small point that the hon. Gentleman made. Pressure from the Association of British Insurers and from Committee members ensured that, by the time we considered the clause in Committee, the Government had already clarified many of the matters to which the right hon. Gentleman referred. The clarification came before discussion in the Committee.

Mr. Beith: That is a fair point. A great deal of effort was made with considerable speed to secure changes. The hon. Gentleman and others were involved in bringing about the changes and I think that we can all claim some credit for having secured improvements in the Bill in Committee. But it does not seem to be a sensible way to introduce new taxes.
The Bill also marks the end of the Lawson reforms. A significant part of the Bill removes the indexation loss provision. It had been hailed by the former Chancellor as not only logical, but a matter of justice, that losses be treated as though inflation had not occurred. Losses were treated symmetrically with gains.
The reform was widely welcomed at the time, but it transpired that the then Chancellor, Lord Lawson, had not appreciated the incredible scale of future losses to Revenue which could result. Those losses amounted to some £3 billion—a much larger figure than anybody outside Government seems prepared to acknowledge. Indeed, so sacred has the £3 billion figure become that it was used in debate today by the Chief Secretary, who accused the Labour party of carving a further £3 billion hole in public finances by criticising the removal of the indexation loss provision.
I do not accept that figure. If such a huge hole can be driven in public finances, the problem should be addressed by more specific measures, not by the total removal of the reform. If, as the Government make out, the major threat of lost revenue comes not from individuals but from

companies creating and using shelf companies and subsidiary companies to offload capital gains and thereby evade tax, the problem should be addressed specifically instead of overturning what was generally thought to be an important and valuable reform.

Mr. Stern: I am very interested in the points that the right hon. Gentleman is making, but I wonder whether he will accept that in the past specific anti-avoidance measures have not necessarily proved effective. For example, I draw his attention to Labour's development land tax, which contained numerous anti-avoidance measures, all of which had the effect of simply bending the market rather than stopping the avoidance of tax.

Mr. Beith: That is a fair point, but I do not think that it needs to apply to the logical way of dealing with gains and losses. I am always suspicious of arrangements which allow the Government to benefit from inflation—in which it is to the Government's advantage to see a fairly high rate of inflation. Too many things in our system have encouraged Governments to tolerate and stimulate inflation in the past.

Mr. Gill: Before the right hon. Gentleman moves from the subject of capital gains, I invite him to consider that, potentially, capital gains might this year be worth about £3.3 billion to the Exchequer, but, by the time all the reliefs and allowances are subtracted, capital gains will net £1 billion. That is a quite serious situation. What does the right hon. Gentleman think about the cost to the nation of the accountants, solicitors, consultants and tax experts who have been employed in the process of reducing potential capital gains of £3.3 billion to a net £1 billion? Would not all those brains have been better employed in the productive sector of the economy to boost Britain's productivity and create better and more competitive products to sell on world markets?

Mr. Beith: The hon. Gentleman undoubtedly has my sympathy on that point. But I fear that the same accountants and tax advisers will now be engaged in finding new ways of dealing with this law. What could be more helpful to them than to produce a Finance Bill of these dimensions?
It is impossible for taxpayers to know what to do about their tax positions when they are confronted with complex provisions. I fear that the Government's choice of such complex legislation has added to the huge industry which the hon. Gentleman understandably believes might be more profitably and productively directed elsewhere in the economy. I wish that we could achieve the objective that he sets out.
I turn to what I believe to be the main point of the Bill. The Bill is supposed to deal with the mess which the Government have created. It is supposed to deal with the public sector borrowing requirement which has resulted from the recession being so deep and prolonged. Together with the earlier Finance Bill, the legislation involves the biggest tax increase in modern times. It provides a calendar of tax increases which will carry us through this tax year and into the next.
For example, there is an 8 per cent. and 17.5 per cent. value added tax on fuel. The Government should say now that they will not go to 17.5 per cent. VAT. They will not even help by providing measures which will ease people's problems in confronting fuel bills.


I have an Energy Conservation Bill which is due to be considered on Friday. Having said initially that they were in favour of the principle of the Bill, the Government have tabled more than 200 amendments in an attempt to block one of the measures which would help people to cut their VAT bills by using less fuel. The hon. Member for Esher (Mr. Taylor) is one of the culprits in this ludicrous attempt to block a very sensible measure.
The calendar of tax increases continues with the extra 1 p on national insurance contributions. That is a particularly unfair way of extracting extra taxation because it starts at a lower level of income than income tax and stops at a low level. It imposes no additional taxation on those with higher levels of income and, as a result, it is borne most heavily by those with lower income levels. It is not a fair way of dealing with the Government's financial problems.
The Bill also includes the freezing of personal allowances and the reduction in mortgage interest tax relief and the married couple's allowance. Of course, I have argued for a phasing out of mortgage interest tax relief and have usually been bitterly attacked by the Conservatives for doing so. However, they are now doing the job for us and doing it more drastically than I had proposed because their plans will attack existing mortgage holders and are not being phased in for new mortgage holders.
The insurance tax will bear heavily on people who need to insure, especially because of the impact of crime in the cities. The increasing cost of premiums will mean an especially unwelcome addition to their bills at a time when we should be encouraging people to be insured against risk.
The airport tax will inflict particular hardship in the highlands and islands, where air journeys are often matters of urgency and not the luxury that they are in other parts of the country—they are the only way of getting somewhere quickly. The burden will be unfairly and unevenly distributed.
Where are these taxes going? They are not being used for investment or being spent on education. The Conservatives have not become converts to the view that high taxation is needed to improve public services; their view is that taxes are needed to pay for the mess that they have made. Under the Conservatives, taxes are high, but not because of the provision of better public services—they are high because of the mismanagement of the economy and of the prolonged and deep recession.

Mr. Forman: I cannot let the right hon. Gentleman's last remark pass without making an observation. He asked where the taxes were going and said that they were not being used for education. Spending per pupil is the right measure to use. I believe that education spending is now at the record level of about £30 billion across the United Kingdom, so he cannot sustain his argument.

Mr. Beith: The increase in expenditure arose from commitments made immediately before the election, not from the policy now being pursued by the Government. It is perhaps worth pointing out that state and local authority-run schools are having their budgets squeezed so that the Government's favoured projects—grantmaintained, opted-out schools—get extra assistance. Anyone who works in a school can provide ample evidence

that schools are attempting to do a difficult and demanding job without sufficient resources. That is why we believe that it is essential to secure improvements in education spending. We told people during the election campaign that, if necessary, we would increase taxes in order to secure those improvements.

Mr. Clive Betts: Has not the Liberal party's policy altered slightly? Instead of arguing for 1p on tax for education, the latest suggestion is 1 p off income tax. That is very different.

Mr. Beith: The hon. Gentleman is correct. The Conservatives have increased taxes by the equivalent of 7p in the meantime and we have to bear that in mind. If we could possibly secure the additional spending without a further increase in taxation, we would of course do so because I fear that the overall effect of the new taxes will be to put recovery at risk. The Government have increased taxes by much more than we contemplated and, as the Chancellor admitted in his meetings with the Governor of the Bank of England, there is a risk that the increases will stall recovery. I certainly hope that we do not have to retain taxes at this level but that we can make use of some of the taxation to increase expenditure on education.
The Conservative party has become a high tax party for reasons of mismanagement, whereas the Labour party, curiously, appears to want to be seen as the low tax party. It is actively saying that taxes will be lower under Labour. The hon. Member for Blackburn (Mr. Straw) is trying to prove that point with the council tax figures and, at various points in our recent debates, it has seemed that that is what members of Labour's Front Bench wanted to argue.
The Chief Secretary was bitterly criticising Labour Front Benchers for their expensive amendments to the Bill, but I examined the amendments that we discussed yesterday. After a great deal of debate about how much Labour wanted to increase spending an investment in infrastructure, I found that Labour was seeking to afford relief of £100 a year to a company that built a railway. That is a derisory figure. Labour had tabled the amendment in question because it wanted to debate an issue without committing itself to a great deal of expenditure.
The Labour party is entitled to take whatever view it likes, but I believe that many voters who have traditionally voted Labour will tend to think that, if the party is not about getting better public services and, in some cases, having to pay a bit more tax for them, it is not about very much at all. It is very hard to imagine how one is to get people committed to a political cause in opposition to the traditional Conservative view if they are not offered the prospect of better public services and if it is not accepted that it may cost more in taxes to get those improved services. The Labour party may prove to be right, but I beg to differ.

Mr. Nicholas Brown: In fairness to the right hon. Gentleman's case, he should point out that, at the previous election, we offered modest tax increases funded by those most able to pay. We also offered modest improvements in public services, so we have not strayed quite as far from our agenda as the right hon. Gentleman suggests.

Mr. Beith: I endorse what the hon. Gentleman says. Modest improvements were offered, and some increases, which were not terribly well targeted, were also mentioned. As a result of that experience, the Labour party has now


decided that it dare not do the same again; it has decided that one must tell people that taxes will be cut, whatever one anticipates will really happen. The Government have proved that it can be done, but I hope that it cannot be done on a regular basis, that the Conservatives will not get away with it again and that the Labour party, were it to attempt so foolish a course, would not get away with it. One has to be honest with people and tell them that better public services may mean higher taxes.

Mr. Brown: I am not sure that I need to be advised by —of all parties—the Liberal party to be honest with people. The great crime that the Labour party committed was to be honest about its tax policies before the general election. The Conservatives told lies about our tax policies and, as we now discover, also told lies about their own. It is a painful issue for me and my party and we do not need to be reminded of it by the right hon. Gentleman. The fact that we are not keeping a running tax and spending total in opposition to the Government's ever-changing tax and spending policies does not mean that we shall not put our case clearly and precisely before the electorate at the next general election, exactly as we did last time.

Mr. Beith: Let us wait and see. There is an interesting argument about how parties position themselves before elections. We certainly intend to go into the next election as we did into the previous one, telling people the truth if we believe that taxes might have to be increased. However, we do not know what the level of taxes will be when the next election campaign starts. We do not know whether the Conservatives will succeed in knocking 1p or 2p off income tax at the last minute, having taken a huge amount in taxation out of people's pockets in the meantime.
The Chief Secretary made much of inflation being low and retail prices holding, but he must recognise that it is in part a consequence of the slowness of recovery. Retailers are holding prices because they have to—they will not stay in business if they increase prices. The phenomenon of the continual sale has been evident in our high streets for a considerable time. In fact, there have been two phenomena in our high streets: the first is the continual sale and the second is the empty shop.
Very few of us represent constituencies in which high streets are not well supplied with empty shops or with shops on short leases to charities and in which the remaining retail premises are having to live by sales. While that is good news for the consumer, it poses the hidden risk that inflation will increase sharply if we ever reach the stage where retailers can start to recoup some profits. Smaller retailers in particular cannot go on indefinitely as they are: they are struggling to stay in business and make a living.
Inflation is a problem that will return and interest rate policy has to take account of that. I counsel those who think that a further 0.5 per cent. cut in interest rates at any moment will get the recovery moving to bear in mind the fact that there is a danger further down the line and that the efficacy of further interest rate reductions can easily be exaggerated. I am not saying that we could not achieve another small change at some point in the coming months, but we have to be careful, and we should not get over-excited about its effects.
Of course, any reduction would be offset by the effect on pensioners and those living on limited capital whose spending power has already been severely cut. Many of

them were dependent on the rather high rates of interest that prevailed when they decided to move into a sheltered housing scheme, for example, and assumed a level of income that has not been maintained.
The Chancellor thinks that the Bill has put right public finances once and for all. Nobody believes that. The Treasury Select Committee poured cold water on that somewhat grandiose suggestion. But the Bill has changed once and for all the idea that the Conservatives can be relied on to hold down taxes or to keep their promises. When they promised to cut taxes, they knew that there would be a huge borrowing requirement, estimated at £30 billion, so they cannot have been serious even when they made the promise.
This is the longest Finance Bill ever. For taxpayers, its length is like that of the supermarket till receipt; the longer the piece of paper the bigger the bottom line, and the greater the cost to them. And what are taxpayers getting in return? They are getting years of neglect of the education system, of the transport system, of manufacturing industry and of the energy efficiency of our housing stock. When the Government are eventually bundled out of office they will leave an economy sadly ill-equipped for the future.

Mr. Forman: As I listened to the Opposition speeches, I was reminded, slightly irreverently, of the parallels between what goes on in the House and what goes on at the opera. One parallel is the fact that it is never over until the fat lady sings.

Mr. Derek Enright: She is in the other place.

Mr. Forman: We look forward to hearing the less than fat lady, indeed the slim and svelte lady, the hon. Member for Peckham (Ms Harman), singing to the House and to the country fully and frankly about the various commitments of the Labour party—commitments that have already, by implication, mounted up to spend more, to tax more and to borrow more.
The second feature that debates in the House have in common with opera is the fact that one frequently has to suspend one's disbelief. I certainly had to suspend mine somewhat when I listened to the hon. Member for Peckham and I am glad to have the opportunity to say a few pithy words about her speech.
The hon. Lady seemed to clothe Labour in the garb of a party of low taxation. She spent much time berating us for having put taxes up in the previous two Budgets. Yet let us examine the record of the most recent Labour Government—one has to go back a long way to find a Labour Government, but I must tell younger Members that there was one between 1964 and 1970 and another between 1974 and 1979. Older Members of the House—not you, of course, Madam Deputy Speaker—will recall that the burden of taxation was higher when both those Governments left office than it was when they came in.
The hon. Member for Peckham also seemed to say that, if the Labour party came into office it would be the party of low borrowing. She made a specious comparison concerning the public sector borrowing requirement, which the Chief Secretary to the Treasury challenged from a sedentary position. She took a definition of the PSBR that


was wholly unknown to the Treasury when there was a Labour Government and considered central Government borrowing alone.
That definition of such matters may be used on the continent, but it happens not to be the definition traditionally used in this country. The hon. Lady contrasted it with the equivalent figure for central Government borrowing under the present Government—at least she was comparing like with like—and cast our position in what from her point of view was a favourably unfavourable light.
However, the Treasury works on the assumption that all public borrowing, whether it is done by local authorities —hence all the debate about capital receipts—by the remaining nationalised industries, or sometimes even by what are called quangos, counts towards the total of public borrowing. That is because in a sense a public guarantee stands behind all that borrowing. If the hon. Lady had drawn that comparison, her figures would have come out differently.

Mr. Ian Taylor: Does my hon. Friend conclude, as I do, that the hon. Member for Peckham wished to exclude local government debt because the bulk of it is incurred by Labour authorities that have never lived up to their responsibilities and tried to reduce the debt problem?

Mr. Forman: My hon. Friend is right. Much local authority debt is attributable to the spending policies of Labour-controlled authorities.

Mr. Betts: Is the hon. Gentleman aware that, under the current rules on local authority borrowing, local authorities can borrow only for investment, not for current expenditure, and that all that borrowing has to be approved by central Government, who must therefore share the responsibility? Is he aware that, when the Prime Minister was Chief Secretary to the Treasury, he produced a report on behalf of the Government advocating that certain elements of local authority expenditure, directly connected with their raising of taxation, should not count as part of the PSBR? Such a case is arguable, even by Conservative Members.

Mr. Forman: I take that point, but the hon. Gentleman will appreciate that my argument was about the historical record. I was talking retrospectively rather than prospectively.
The hon. Member for Peckham also sought to cast her party as the party of low and responsible spending. That same refrain has recently been taken up in the context of the local elections by the hon. Member for Blackburn (Mr. Straw). However, I could not help noticing in the newspapers recently that the shadow health spokesman, the hon. Member for Sheffield, Brightside (Mr. Blunkett) had made one vivid commitment—that the Labour party's aim would be to increase tax-financed spending on the health service to 7 per cent. of GNP. That is a nonsensical indicator. The great thing about spending on health is not only that it should increase but that it should be cost-effective, and that we should get the maximum possible patient care for whatever money the nation can afford at the time.
Finally, and rather incredibly—this goes back to my theme of the suspension of disbelief—the Labour party has

made a stab at presenting itself as the party of low inflation and responsible management of the economy, were it ever to be in government. Yet again, I could not help noticing a recent commitment to a statutory minimum wage of £4 an hour, which I have not heard officially denied by the hon. Member for Dunfermline, East (Mr. Brown).

Mr. Nicholas Brown: Let me officially deny it now.

Mr. Forman: That shows how helpful Back-Bench speeches can be. They can elicit a little more clarity on the evolution of Labour policies.
The Labour party claims to be the responsible party of low inflation. However, I cannot help noticing that, over the past two years or so, for the duration of this Parliament and slightly longer, every time that it has been prudent and possible for the Chancellor of the Exchequer of the day, on the advice of the Governor of the Bank of England, to cut interest rates—after all, they have fallen substantially, from 15 per cent. to 5.25 per cent.—the Labour party's response, either from the Leader of the Opposition or from the shadow Treasury spokesman, has been, "Not enough; it should have been a point more." As a policy that could be presented credibly to the markets as a policy of low inflation, that beggars belief.
On all those counts—taxation, borrowing, spending and the safeguarding of the nation's finances in terms of controlling inflation—one has to suspend one's disbelief when one listens to Labour party spokesmen, so the experience has a great deal in common with a night at the opera.
To make my second broad point, I again speak as the parliamentary adviser to the Institute of Chartered Accountants in England and Wales. Hon. Members who read the briefing material that the institute supplied to the Standing Committee will know that its main argument this year, on behalf of most people in the profession, did not concern matters of detail. I confess that the institute was somewhat exercised about what was then clause 241, which the Government wisely, and with all-party approval, withdrew. However, the institute's main point concerned the interminable and unacceptable length of the Bill, its opacity and the fact that it is inherently too complicated.
That argument comes from the practitioners, who have earlier been described as cashing in on the benefits of complexity and opacity in financial legislation. If even they make that point, one must admit that it is an altruistic and sensible statement, which the Government should heed.

Mr. Stern: My hon. Friend should not be blinded by the strength of his support for the institute that briefs him. As a practising chartered accountant, I assure him that it is possible to have it both ways.

Mr. Forman: I have no doubt that clever professionals tend to have things both ways. I refer not only to the accountancy profession but to other walks of life; I have no doubt that the same is true of lawyers and doctors. I stand duly corrected by my hon. Friend the Member for Bristol, North-West (Mr. Stern); perhaps I should call him my hon. and learned Friend on such matters.
I have a serious point about fiscal policy in the medium to longer term. It is a point that I made on Second Reading in broad terms and I do not apologise for going back to it because I believe that it bears repetition. In the medium to longer term, by which I mean in the next Parliament, when we shall still be on the Government Benches and the


Opposition will still be over there, we shall need further to broaden the tax base. That is a very important point. At the same time—this is the concomitant point—we shall need to lower our rates of tax, especially in terms of income tax and VAT. Those are the two sectors in which I should like to see lower rates of tax.
In case Opposition Members think that they must suspend disbelief when they hear me say that, explain briefly how those lower rates of tax could be achieved. On income tax, hon. Members will know that the cost of tax allowances, or tax expenditures, is colossal. The Government are to be commended for making a small range of attacks on those tax expenditures in this and previous Budgets. That trend should be continued.
What hon. Members may not know so well is that, were a future Chancellor or, indeed, the present Chancellor, who I hope will do this in a future Budget, to take the bold decision dramatically to extend the base of VAT so that it covered all forms of consumer expenditure—a point that I have argued on the record on previous occasions—it would be perfectly possible, as I shall show when I give hon. Members the figures, to move to a standard rate of VAT of 15 per cent., instead of 17.5 per cent. as it will be from April next year. At the same time, it would be perfectly possible to introduce a starting rate of VAT on the real essentials of 8 per cent., which would be analogous to the multi-rate structures that our partners in the European Union have.
It would be possible to make such a change in such a way by broadening the base and by cutting the rates so that some of the items now covered at 17.5 per cent. would be covered at 8 per cent., which would constitute a cut in the rate of VAT. Other items that are now zero-rated or exempt would come in at 8 per cent. The standard rate would come down from 17.5 to 15 per cent. The net effect of that package, when run through the Treasury model, as she is called, would be a net gain to the Exchequer in the current tax year of between £5 billion and £10 billion. That would be very useful revenue for my right hon. and learned Friend the Chancellor in his efforts further to close the public sector borrowing requirement.

Ms Eagle: Will the hon. Gentleman remind the House why the rate of VAT went up from 15 to 17.5 per cent in the first place? If he does not care to do that, I remind the House that the reason was the gross waste of public money that the poll tax and all the disasters that accompanied it represented in terms of losses to the Exchequer.

Mr. Forman: The hon. Member for Wallasey (Ms Eagle) is being very kind; she is intruding into private Tory grief on this point. I do not wish to rake over the coals, to mix my metaphors. She, I and the House know that the reason for the increase was that the party got into a bit of a mess over what was called the poll tax. It was wise, timely and necessary for the then Chancellor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), to switch the burden to VAT. However, that is not to say that one cannot take a different view of those matters as the years go by.
We have a better alternative in the shape of the council tax, which is an improvement on the poll tax in many respects. What is more, as we manage the nation's finances prudently in future, as we have done in the past, it should be possible to make the rather bold reforming changes to the tax structure that I have just sketched out.
I shall put on record two or three reasons why the changes that I have just recommended for the medium to longer term are necessary and make sense. Those reasons are based on realism rather than on pie in the sky. The first reason, to which other hon. Members have alluded earlier today, is that in the world of global capital movements and instantaneous financial transactions, there is increasing competition, as the hon. Member for Ashfield (Mr. Hoon) said, between national tax authorities.
That is one of the realities of the modern world which has a secular tendency to drive down rates of taxation, especially marginal rates—it may even drive down average rates of taxation as well. That is a healthy development because it means that people have to seek better and better value for whatever public expenditure they can afford to finance through taxation. The more that it can be honestly financed that way rather than on the back of public borrowing, the better.
The first reason, therefore, why it is necessary to make the strategic reform that I recommend is that, with the growing competition between national tax authorities, especially the competition affecting taxes on income and capital, it will be strategically necessary for the present Chancellor and future Chancellors to find a variety of ways in which to make our taxation regime, especially on those two items, as attractive as possible internationally.
More and more of those forms of tax will essentially be voluntary taxation. In other words, in the world of mobile investment, mobile corporate decisions and mobile high net worth individuals, people will be able to decide to situate here rather than there on the basis of the tax regime that applies.
My second reason is topical because something that the Trades Union Congress said about changes in the labour market was reported in the press today. What we see now and shall continue to see—incidentally, a similar point was made in yesterday's debate on child care. by Opposition Members—is a gradual erosion of the income tax base because of the relative decline of full-time paid employment. Opposition Members know that better than most people do. There has been a relative growth of part-time and casual employment, and of self-employment.
The figures are interesting. As the hon. Member for Edinburgh, Leith (Mr. Chisholm) did yesterday, I shall pull some figures out of my pocket. Our population is 56 million people. Some 31 million of those 56 million people are not in work for very good reasons; they may be pensioners or below the age of employment. Some 3 million are registered as unemployed—these are round figures—and 1 million people would like a job if they could get one, but have more or less given up the hunt.
Those figures leave 25 million people in work, of whom 3 million are self-employed. Some 6 million are in part-time work, which leaves 16 million people, out of my total of 56 million people, who are in full-time work as employees and who contribute to the Revenue in the classic way that has been the case since 1944 and the days of Sir Paul Chambers. They contribute through PAYE—pay as you earn—with the employers doing the bulk of the tax collection work on behalf of the Revenue.
Those figures mean that fewer than one third of the total population are being required largely to support the rest of the population, whose needs are varying, through the auspices of tax and national insurance. That suggests to me a greater need to consider my third reason for making the change to which I have referred—the move towards the


kind of expenditure tax system recommended some time ago by Professor Mead. That system takes account of the erosion of the income tax base and is much better tailored to capturing revenue when, increasingly, potential revenue is escaping the tax authorities because of the black economy, the tendency for people to consume and the need generally to maximise the tax take from a shrinking tax base.

Mr. Stern: I cannot let my hon. Friend get away with what he said a couple of minutes ago. It is neither fair nor proper to suggest that the 6 million self-employed people do not provide a significant proportion of the tax and national insurance that the country needs. That was what my hon. Friend, no doubt inadvertently, implied.

Mr. Forman: I did not intend to make that point. I am grateful to my hon. Friend for clarifying the matter. I was saying that the bulk of taxation, especially on income, as my hon. Friend knows better that I do, comes from people who pay income tax, and national insurance of course, at the standard rate. About 95 per cent. of all taxpayers, as my hon. Friend knows, pay only at the standard rate and not at the higher rate, whatever it may be. Therefore, those arrangements, which have grown up since the days of Sir Paul Chambers in 1944, are still the bedrock of the buoyancy of our revenue generated on the income side.
My third argument in favour of moving gradually—the Government have already begun—towards an expenditure tax model for the tax system is that it has an in-built bias in favour of investment and savings as opposed to consumption. Many hon. Members, including, I suspect, some Opposition Members, think that we need more of an investment bias in our economy over the next phase of the recovery. Indeed, there are many signs from the current degree of re-stocking that that investment bias is now taking place and we are glad about it.
In a nutshell, whatever fun we may be able to have at the expense of the Labour party—I am sure that we may have some sport—and whatever may be the shortcomings from a technical point of view of the enormously long and complicated Finance Bill, nonetheless, in the Budget, which is after all the reason for the Finance Bill, the Chancellor took the right and responsible decision to give priority to closing the public sector deficit. That will happen not in one year but over several years. He did it at the right time and in the right way and I pay tribute to the Finance Bill.

Mr. Enright: During the speech of the Chief Secretary to the Treasury, I was reminded of nobody so much as the Emperor Caligula—not because of his coiffure or his attire, although those indeed rival the appearance of the emperor—

Mr. Hoon: It was because he made his horse a consul.

Mr. Enright: I was not reminded of Caligula because, as my hon. Friend has just said, the Chief Secretary made his horse a consul, although he has a considerable number of asses working for him in the Treasury. Indeed, when the right hon. Gentleman took on the hon. Member for Lancaster (Dame Elaine Kellett-Bowman) as his special adviser, he instantly doubled the IQ of the Treasury.
Where the Chief Secretary reminded me most of the Emperor Caligula was in his fiscal policy, because it was the Emperor Caligula's aim to go forth, to tax and increase taxes and spend them not on the good of the people, but on the good of himself and his friends. That is precisely what has happened. In excusing himself, the Emperor Caligula regularly gave specious reasons why he had to impose the taxes for the grandeur of Rome, and also regularly pointed out how much better he had been than the excellent Emperor Tiberius, which was not at all true.
If one considers the claims of the Government, we discover that they are quite false. We may always take a three-month period or a six-month period or a one-year period and extrapolate from them something which is reasonable, but let us consider a ten-year period and find out how the United Kingdom compares with the leading industrial countries.
The average UK unemployment over 10 years is the highest in comparison. Its growth rate is the lowest. In terms of inflation, only Italy is higher than the United Kingdom. In terms of high interest rates, again only Italy exceeds the United Kingdom. In terms of exports, the UK is the lowest.
There are two areas on which the Government have especially concentrated, and one has been inflation. Therefore, one would expect that Italy had done even worse than the United Kingdom over those ten years, but that is not the case. Italy's employment record, its growth record, its export record and its expenditure record are all better than the United Kingdom's, and Italy is scarcely a model of good government. Yet Italy outstrips us over 10 years, which says something about the depths into which we have fallen.
The hon. Member for Ludlow (Mr. Gill) talked about a brand image. A brand image is what one presents to customers. To objective customers, the Government look cheap and tawdry. They are an imitation of that which they would be like to be: an imitation of honesty, an imitation of looking to the long-term future, and a complete failure in so doing.
The little discussion among accountants on the Conservative Benches was interesting, because one of the great bugbears of British manufacturing industry has been that accountants have taken control of boards, and, simply for short-term financial reasons, have destroyed great swathes of manufacturing industry. They have served the country ill in their commanding position. Accountants are essentially the handmaidens, they are the servants and, too often, they have become the bosses. That fact was mirrored in the speech of the otherwise humane Member for Carshalton and Wallington (Mr. Forman).

Ms Eagle: Does my hon. Friend agree that the startling fact that one quarter of all the accountants in the European Union come from the United Kingdom bears out some of the points that he is making about the deadening effect they have on our manufacturing industry and our ability to compete in the modern world?

Mr. Enright: I am grateful to my hon. Friend for making that point. I must confess that it is not something that I had dwelt on in those terms. However, it is true that service industries can be creative and constructive, but too many of our accountants are precisely the opposite.

Mr. Forman: Will the hon. Gentleman give way?

Mr. Enright: Of course I shall give way to the hon. Gentleman.

Mr. Forman: I rise to intervene in the hon. Gentleman's speech simply because of my known connection with the accountancy profession, to which I do not think that he can attribute the relative decline of our manufacturing industry over a long period. Indeed, the decline in employment in manufacturing goes back to 1964. There are many other reasons for the decline, which are to do with the state of industrial relations and with the growth of competitiveness in other countries. He travesties the position to pretend that it is attributable to the accountancy profession.

Mr. Enright: I hear what the hon. Gentleman says, and I would not wish to say that all accountants are in the same boat. Nevertheless, it is true that certain attitudes of management in British industry have been responsible for its decline.
One only has to work on the continent—one sees it starkly in Africa—to see that the quality, not of all British industry management, but of too much of it, is very poor. That problem has not been addressed by the Government: by the Department of Employment or by the Department of Trade and Industry. It is a matter of serious concern, which should be addressed. We need a whole variety of training, but training in management at all levels is crucial. We do not do it well, as they do on the continent, and it is most certainly not done as well as in the United States and in Japan.
I shall not only consider the cash, the pennies, the awesome sums that are produced, but consider a little the humanity which should be behind our fiscal and financial policy.
Conservative Members regularly say that the whole question of a minimum wage will drag us down as a country. I find that an extraordinary statement. I have believed since my early youth, because I was taught it, that there is such a thing as a just wage, and that it is right in society to fight for a just wage. If a minimum wage is not a just wage, I do not know what is.
It is quite wrong to say that industry cannot manage a minimum wage. Why not? Industry elsewhere does. Industry in Germany does. Every single company that has come into the country manages to produce what would be the equivalent of a just wage.

Mr. Forman: Did not the hon. Gentleman hear the hon. Member for Newcastle upon Tyne, East (Mr. Brown), speaking from the Opposition Front Bench, respond to my observations by saying that what he is saying is not Labour policy?

Mr. Enright: On the contrary, I listened carefully to what my hon. Friend said. might have jumped on him if he had said something deadly wrong in moral terms. In fact, he did not do so. He said that we, the Labour party, refused to quantify a minimum wage.

Mr. Forman: No.

Mr. Enright: My hon. Friend said that it was not £4. That is extremely important.
It is about time that the Secretary of State for the Environment and the Under-Secretary of State for Employment, the hon. Member for Maidstone (Miss Widdecombe), who have recently joined the Church of

which I am a member, stopped choosing a la carte. The teaching of a minimum wage and of consultation of trade unions or appropriate bodies has been the morality, not the policy, of the Catholic Church, going back to Pope Leo XIII and "Rerum Novarum". It was reaffirmed by "Quadragesimo Anno".
I see that the hon. Member for Harrow, West (Mr. Hughes), the Government Whip, is shaking his head. Pope Pius XII, who can scarcely be accused of any leftist, let alone communist, tendencies, attended the foundation of the European Coal and Steel Communities treaties and made a speech in which he said specifically that trade unions were an important part of the consultation process, and that the future development of industry depended on consultation with workers' representatives. That is extremely important.
Pope Pius X11 said that the treaty was not solely about economics, and not simply about the trade of certain commodities, but about bringing justice towards ordinary people, health and safety at work and treating human beings with the dignity they deserve. It is about time we reminded ourselves of those basic moral values. Hon. Members may put them aside if they wish—I most certainly will not do so—but I shall not have them sneered at by Conservative Members.
German industry, a good deal of American industry and Japanese industry are able to observe moral edicts of the sort that I have described and still be profitable. Surely it is common sense that any company that wishes to be successful should take on board its work force, should have it going enthusiastically along with the company, should be consulting it about the future, and should be consulting it about deficiencies.

Mr. Ian Taylor: I am intrigued by the use of papal infallibility to bolster a Labour party policy. In hard terms, however, the reality is that, if we are to have a minimum wage, the state must bear in mind the fact that, ultimately, it may have to subsidise a higher level of unemployment, because entry into work is often barred because companies cannot afford that minimum wage. The alternative is to subsidise companies to take on someone and to pay him the minimum wage. Is that not precisely what France is now experiencing, with all the troubles it faces with high youth unemployment because of a minimum wage?

Mr. Enright: The hon. Gentleman is normally much more intelligent and perceptive than that. First, it is not the policy of the Pope and infallibility. The Labour party came a long time after that. I ask him to cast his mind back—assuming that he was taught religion properly—to the Acts of the Apostles. They held all their goods in common and gave to each according to each as had need. That is a fair principle. I think that it was taken up by Karl Marx, or someone like that. If the hon. Gentleman considers the description of the early Christian community, he will find similar words in his New Testament.
I suggest that the second part of the hon. Gentleman's intervention was even further out of line—his suggestion that a minimum wage would make unemployment much worse. For 15 years, the Government have set their face against a minimum wage. They have asked us to accept that they are wonderful in their deregulating exercises. In fact, they have quadrupled unemployment. I need no lessons in reducing unemployment from Conservative Members. Their approach is an absurdity.


There is more than one absurdity. A Minister from the Department of Employment talked in European Community Standing Committee B about child labour. That dreadful dragon of a Commission was proposing that we contain the number of hours that children work. He complained about that. He seemed to be saying that children should be allowed to work all hours. In one way or another, he seemed to suggest that they should be open all hours.
The next day the Secretary of State for Education was telling us about the problems of truancy, and how we can solve them. I can say without any doubt that a large proportion of truancy or unauthorised absence from school arises because children are doing milk rounds or paper rounds. They are the same students who often go to school and fall asleep. They do not absorb the basic elements. We must keep a balance, instead of resisting every proposed change.
The Government, by their fiscal and financial policies, are shoving us into a real poverty trap. They cannot complain about the breakdown of the family if their policies are almost deliberately designed to destroy the family.
The hon. Member for Carshalton and Wallington said that, if value added tax was 15 per cent. throughout and we then sliced off income tax, the result would be much fairer, more reasonable and simpler. It is clear that he is not aware of what has happened to families in my constituency.
The pits having been deliberately put out of business by the Government, most of my constituents rely on low-wage jobs. Some of them are paid £80 a week. I have in mind especially an industrial estate. I went to the factories within it to ascertain what they paid for a standard 40-hour week. I found that they were paying £80, £100, £105 or £115. The wages were hovering at those levels.
How do people pay the taxes that are so heinously demanded by the Government if they are on those low wages and bringing up a family of four? No one can do that. The result is destructive. The consequences lead to crime and the cause of crime. It is true that not all kids commit crime, but it does not surprise me that many of them get into criminal situations.
We need an education for skills and ideals. It should not be one that is utilitarian and materialistic. We need education that teaches people to think beyond the 5p, 10p or £2,000 that they claw unto themselves without thinking about the morality of doing so.
We need also an integration of various policies. There appeared today before the Select Committee on European Legislation a note written by the Minister for Energy, a well-known intellectual. He wrote that the European policy on energy is not acceptable to the United Kingdom. What is that policy? The rest of Europe is saying that there is a requirement to integrate social and energy policies. That is clearly true, but that did not happen with the closure of the pits.
We shall be left, because of the short-sighted way in which the Treasury team conduct our country's policy, reliant upon external sources for our energy by the turn of the century. At the turn of the century, when every expert from the United States, Japan, Africa or wherever points out that the main source of energy will once again be coal, the pits have been shut down. Misery has been created, and

the public sector borrowing requirement has been created by the Government. People will go cap in hand to get their money from employment exchanges which no longer have the ability to employ.
The Government are absolutely encapsulated by what Ian Byatt said last night. Ian Byatt, who is supposed to protect the customers of water, was asked: "To whom are you responsible?" He did not say the customers; he did not even say the companies; he said the City. That is the sort of morality that is preached by the Government. I was shocked by the reply. It is the reason why, if the Government had any sensitivity, they would sack him at once, and all the people he has appointed.
The country has the skills, the people, the resources, and the resourcefulness to solve its problems. What it needs is leadership. The Government offer none.

8 pm

Mr. Stern: I shall not attempt to follow the hon. Member for Hemsworth (Mr. Enright) in the wide-ranging nature of his speech, except perhaps to say that in view of the fact that he was bandying Christian doctrine across the Floor of the House—I can take a fairly detached view as I come from a somewhat older religion than Christianity —his remarks about accountants were peculiarly un-Christian.

Mr. Enright: Of course, I withdraw, in that like all Christians, I should love sinners more than anyone else.

Mr. Stern: Naturally, I accept that apology.
In some fairly brief remarks, because I know that some of my colleagues also wish to speak, I shall concentrate on one aspect of the Finance Bill which has been the most important to me, namely, the technical changes that have been introduced.
This has been a far-reaching Bill in terms of changing the structure of a number of areas of taxation which go back right to the dawn of income tax and which the Government have rightly and extremely bravely taken on and changed. I am referring both to the preceding year basis of assessment for income tax which has been around as long as anyone can remember and which the Government now propose to bring to an end, and the method of assessment, which will bring us into line with many more successful systems of assessment and collection of tax.
I congratulate my hon. Friend the Financial Secretary on introducing the reforms, despite a barrage of criticism both as to the manner of the reforms and their form. I shall deal briefly with both of those aspects.
The Finance Bill, of which we are now seeing the final stage, has been criticised—and in many respects rightly —for its length. It is the longest Bill that we have seen recently. I only hope that it is not a prelude to a longer Bill next year. As was pointed out in Committee, one of the reasons why it was such a long Bill was that it attempted to rewrite large sections of taxation legislation, rather than simply amend it. In doing so, it incurred a large amount of criticism from professions such as solicitors and accountants not for the fact that it attempts to make changes but for the manner in which those changes are made.
Those criticisms are largely unfair because it seems that, if a root-and-branch reform of a whole system of taxation is being attempted, it is much more helpful to set out the


new law in different terminology and in a completely unified set of precepts than to attempt to pander to those who are used to one set of terminology and language and who wish to see the reform appear to be part of the previous system, rather than something totally new.
I noticed that my hon. Friend was criticised by someone for whom I normally have a great deal of admiration—the president of the Institute of Taxation. He criticised my hon. Friend for the changes in language and the length of the new measures that have been introduced. I should point out to my hon. Friend that the president of the Institute of Taxation is a well known and highly respected solicitor. It is not perhaps surprising that a member of the legal profession should object to changes in terminology which cause changes in the patterns of thinking in that profession.
As someone who was trained more in the use of mathematics than wording, I agree with the principles perhaps first set out by Professor Whitehead in "Principia Mathematica". He pointed out that all words are merely an expression of a different aspect of number. Therefore I find it much less difficult than the president of the Institute of Taxation to accept the new concepts and the new terminology introduced in the Bill in terms of setting out a working system for the impact of income tax on most people for most of the rest of their lives.

Mrs. Anne Campbell: I am grateful to the hon. Gentleman for giving way because I am listening carefully to what he is saying. Does he agree that it is not so much the wording of the legislation that is being objected to as the complexity of the additional taxes being introduced in the system? The previous Chancellor, to give him credit, tried to streamline the system and make it simpler for those who had to administer it. The real problem is that a number of new taxes have been added without any attempt to simplify or streamline the system. That shows that the present Chancellor does not have a grasp of what he is saying.

Mr. Stern: I am grateful to the hon. Lady, but she has misunderstood my point. Of course, she is entitled to make her point in her own way on those parts of the Bill that I was not discussing if she succeeds in catching your eye, Mr. Deputy Speaker. The part of the Bill that I was discussing related to the changes being introduced in terms of self assessment and the current year basis of assessment, to which the hon. Lady's comments do not apply. We are not talking about—this is the point that I was making—the complexity of language; we are talking about an entirely new concept being introduced in new terms. That is what I was congratulating my hon. Friend on, and the provisions in the Bill will be much longer lasting as a result.
Having examined the new system of law, I shall turn to an area which my hon. Friend and I discussed in Committee with regard to the change to the current year basis of assessment of income tax. As I pointed out, and my hon. Friend agreed in Committee, the changes introduced in the Bill were incomplete in one respect in that it was necessary to give an early indication of the new anti-avoidance provisions to complete the new pattern of current year assessment.
In Committee, my hon. Friend gave an undertaking that as new businesses are already subject to the new system of assessment introduced in the Bill, it was necessary to give at least an early indication of the new anti-avoidance provisions. I hesitate to remind my hon. Friend that he gave

an undertaking to issue a consultative document before the end of the fiscal year; he missed, but not by much. I am grateful to him for at least making the attempt.
I am a little worried about the consultative document that my hon. Friend has published. The anti-avoidance provisions which have now been published as a consultation document rely rightly on a number of triggers to come into effect. However, they seem to repeat an error, which my hon. Friend admitted in the debate on what was then clause 240 of the Finance Bill—to confuse evasion and avoidance.
I shall briefly remind the House that evasion is illegal and is to be stamped on at every opportunity, but avoidance is perfectly legitimate and has been praised by judges on many occasions. It has always been accepted that it should never be a target for penalty by the Inland Revenue, yet in the anti-avoidance provisions which my hon. Friend has now published, it seems that he is proposing to depart from that principle.
One of the triggers which is proposed in the anti-avoidance provisions is the shifting of profits into the year in which only half are effectively assessable. It is proposed under the anti-avoidance provision that the remedy available to the Inland Revenue will effectively be to tax those shifted profits at an effective rate of a maximum of 60 per cent. The profits will be taxed fully in the year in which the Inland Revenue says they should have been, and by 50 per cent. also in the year in which they appear.
This to me is a wholly inappropriate and unsupportable aspect of tax to prevent avoidance. It is a tax determined after the event, and often as a result of disagreement, and is purely to prevent something that is perfectly legal in the first place.
All the other anti-avoidance provisions which my hon. Friend is proposing merely restore the status quo. They restore taxation to what it would have been if the attempt to avoid tax had not taken place. I ask my hon. Friend sincerely to look again at the one area of anti-avoidance which I have highlighted because what is proposed in the document which has been published is a wholly unacceptable penalty for a perfectly legitimate action.
It will take some time for the new proposals to bed down. I have no doubt that, as in so many other areas of major tax reform, there will be changes to be made in future Finance Bills. It would be foolish to accept that that will not happen. I conclude my brief comments as I started, by congratulating the Government and, in particular, my hon. Friend the Financial Secretary, not just on attempting a major reform which has been long overdue, but on carrying it through in this Bill and, so far, apparently carrying it through with great success.

Mr. Hoon: I will not follow the comments of the hon. Member for Bristol, North-West (Mr. Stern); suffice it to say that I think George Bernard Shaw said:
All professions are conspiracies against the laity.
I know that that applies to accountants, but I am sure it does not apply to lawyers.
In the course of many interviews which the Chancellor gave in the immediate aftermath of his Budget, he emphasised that he did not want to be one of those Chancellors whose Budgets are rapturously received at the time, only to prove—as the details were examined more carefully—to be a Chancellor whom history would recall


got it wrong. He did not say so specifically, but perhaps he was thinking of Lord Lawson's giveaway Budget which helped the Conservatives to win a general election, but for which, arguably, the country has been paying ever since.
It already appears that the Budget embodied in the Bill —when it is examined in detail by the electorate—is proving to be as damaging to the interests of the country as Lord Lawson's Budget. Despite the Chancellor's warnings to himself, he seems to have proved to be a Chancellor of short-term popularity only.
At the time of the Budget, he appeared to be at the height of his popularity, certainly with Government Back Benchers, in what we could describe as the "Who will succeed the Prime Minister?" handicap stakes. Tory Back Benchers waved their Order Papers like successful punters celebrating a visit to the winners' enclosure. Unfortunately, we cannot re-run history, but it is difficult to see that such a rapturous reception would be given to the Budget today if that speech were to be delivered again.
Indeed, most political commentators appear to date the decline in the prospects of the Chancellor succeeding the Prime Minister from the date of the Budget speech—a speech which, of course, led to the biggest series of tax rises in our history. If the support which we have heard from Government Members is reflected in the country, why have the prospects of promotion for the Chancellor of Exchequer been seriously diminished? After all, the electorate which will choose the next leader of the Conservative party is on the Government Benches. If they are so enthusiastic about the Chancellor's Budget, why have they appeared to withdraw their support from the person who is responsible for it?
I shall be grateful if whoever succeeds me in the debate addresses that argument, because there appears to have been a serious loss of confidence in the Chancellor's prospects among the parliamentary Conservative party. Conservative Members will decide whether the Chancellor succeeds the Prime Minister, and they must do so presumably on his record as Chancellor. They appear to support the Budget, but they do not appear to be enthusiastic any longer about the Chancellor becoming the Prime Minister.
Could it be that, up down the country, their constituents are giving them a barrage of criticism about the effect of this Budget on their financial circumstances? Could that be influencing the minds of Conservative Members when they think about who they would like to succeed the Prime Minister?
The Third Reading debate gives us the opportunity of considering whether the fears of my constituents—and, I know, those of other hon. Members across the country—are justified. The House has been able to examine in detail in the period since the Budget speech whether the Chancellor's warning to himself was justified. We have had opportunities since the Budget speech, in Committee and now at Third Reading of determining the precise effect of the Budget. What is our verdict and how has the Budget already affected the country's economy?
I suggest that we begin by looking at the Bank of England's quarterly survey which was published at the beginning of the year. The survey noted that the main force then driving the recovery was consumer spending. It follows that that is dependent upon consumer confidence.

The Government's claims for a recovery at that stage were set out in the figures for January which showed that retail sales were up by 0.6 per cent. over December, and indeed were 3.5 per cent. higher than in January 1993.
All the indicators now show, as people have begun to appreciate the impact of the Budget on their personal finances, that consumers are significantly less confident and that the consumer-driven recovery is stalling, if it has not already stalled. We have some up-to-date evidence of the attitude of consumers towards the present state of the economy.
A Gallup survey of consumer confidence which was conducted on behalf of the European Commission in the first two weeks of April was published this week. The poll showed that consumer confidence has fallen close to the second lowest level recorded in the 14 years since the poll was established. The results show that only 15 per cent. of those polled said that they expected their household finances to improve during the next year, with 45 per cent. predicting that they would be worse off. That is a negative balance of some 30 per cent.—similar to the 31 per cent. negative balance in March 1990, just as the economy went into recession. That was the second lowest figure ever recorded by that polling organisation.
Gloom about household finances seems to reflect also gloom about the country's general economic prospects. In the same poll, 43 per cent. of those surveyed were pessimistic about the country's economic prospects, compared with 21 per cent. who were optimistic. That is negative balance of 22 percentage points.
In the context of a Third Reading debate about the impact of the Budget, it is interesting to compare the position in the last two weeks of April—when 22 per cent. of opinion was negative—with that in January, immediately after the Budget and perhaps before its impact had settled in. Then, the number of optimists equalled the number of pessimists. There has clearly been a significant collapse of consumer confidence since the Budget, and that survey suggests, along with other evidence, that the tax increases contained in the Bill are to blame.
Consumer confidence was actually rising in the last quarter of 1993, before the publication of the Chancellor's Budget proposals. As the details of those proposals have sunk in, however, and people have begun to appreciate the consequences for their personal finances, there has been a rapid and significant decline in that confidence.
This week also saw the publication of a CBI survey showing that retail sales growth exactly reflects the loss of consumer confidence. It is likely that in March, for the second month running, sales were broadly level—or only slightly up after a decline in February. The CBI survey has precisely tracked the level of confidence tracked by Gallup in relation to individual consumers.
If Conservative Members are not satisfied with either the evidence of their own constituents or that of the surveys that I have mentioned, particularly the Gallup survey, perhaps we should examine what is arguably the most authoritarian view—I am sorry; I meant authoritative. [Laughter.] When hon. Members hear who is involved, they will realise that that may have been a Freudian slip.
The most authoritative view of the state of the economy resulted from a survey of one: the occupant of No. 11 Downing street. We now know what the Chancellor of the Exchequer really thinks about the state of the economy, as a result of the welcome publication of the minutes of his monthly meetings with the governor of the Bank of


England. Those minutes reveal a private view of what is happening in the British economy that is significantly at variance with the Chancellor's public pronouncements.
In January, when the Chancellor was publicly proclaiming the benefits of economic recovery and growth arising from his Budget, he was privately telling the governor of the Bank that
He himself was much less sure that the pace of growth had picked up significantly in recent months".
He went on to admit that
In addition, the Budget measures were likely to cause activity to slow".
To be fair to the Chancellor, he has remained consistent: in the March meeting, he indicated that anecdotal evidence did not suggest that activity was growing strongly. However, that too is at variance with what Treasury Ministers have said about the state of the economy during our debates. They have suggested that the recovery is well established, and that the Budget certainly did not contribute to any slowing of activity or anything approaching a stalling of the economy.
The overall message given in private by the Chancellor to the governor of the Bank of England suggests that, in reality, he is not very confident about growth and recovery. Indeed, the general theme of the minutes for January, February and March is the necessity to stimulate recovery by lowering interest rates. The essence of his debate with the governor is this: the Chancellor is not very optimistic about the state of the economy and feels that it is necessary to reduce interest rates, while the governor is concerned about the impact of such a reduction on inflation.

Mr. Willetts: It is a great pity that, when the Government make a significant move towards greater openness in the discussion of economic policy, all that we hear is a selective quotation from minutes in an attempt to make implausible party political points. The main message from those discussions is clear. Let me quote from the minutes of the March meeting:
there were no signs of a pause in growth.
That was the clear consensus of the Bank of England and the Treasury. It is a shame that the hon. Gentleman, having welcomed the publication of the minutes, should then try to misinterpret them.

Mr. Hoon: I am sorry about that. Inevitably, all quotations from a long document will be selective—the hon. Gentleman would rightly protest if I tried to read out the minutes in full—but I do not accept that I have represented the discussions unfairly. In essence, the Chancellor expressed the view that recovery was not well established and was not developing, and that interest rates should therefore be cut; the governor of the Bank of England replied that, although that might be so, lowering interest rates at that stage would incur the risk of higher inflation. I consider that a fair summary of the debate that took place.

Mr. Dorrell: The hon. Gentleman has referred to the "essence" of the minutes. Surely the essence of the minutes of any meeting is contained in the conclusions, on which both my right hon. and learned Friend the Chancellor and the governor of the Bank of England agreed. The various minutes set out those conclusions, which represent the combined judgments of the two people involved. If the hon. Gentleman wants to arrive at the "essence" of the meeting, let him refer to the conclusions, which were agreed and acted on.

Mr. Hoon: They were acted on to the extent that there was a modest change in interest rates during the period concerned, and there is currently considerable speculation about the possibility of further changes. That precisely tracks the developments in the course of those meetings that I have tried to set out. How we interpret the minutes is a question of judgment; I certainly do not feel that I have misled the House in any way in my representation of what took place.
The evidence that I have cited—the conclusions of the Gallup and CBI surveys and, indeed, the private view of the Chancellor of the Exchequer—suggests that the tax rises announced in the Budget will pose significant problems for any further growth in the economy this year. They are clearly to blame for the collapse of consumer confidence, and that in turn will lead to a slowdown in the recovery. That is why I began by quoting from the Bank of England's quarterly survey, which suggested that the Government's strategy was based on an improvement in consumer confidence.
Such an improvement appeared to be under way in the earlier part of the year, and there were some statistics to support that; now, however, those statistics seem to have disappeared, and consumer confidence—the real test of the Government's strategy—has collapsed. As the figures confirm, that is a direct consequence of the way in which the Government have raised taxes at a critical point in the health of our economy.

Mr. Ian Taylor: This has been a wide-ranging debate.
If I heard him correctly, the hon. Member for Hemsworth (Mr. Enright) called in aid the emperor Caligula and various popes, all of whom occupied Rome —although, I suspect, for slightly different purposes. I began to feel a little worried when he threw all the apostles at me in response to my intervention: he and I often share certain christian democrat instincts—small "c", small "d" —about the way in which policy in the European Community should go.

Mr. Enright: rose—

Mr. Taylor: If I have in any way traduced the hon. Gentleman's biblical leanings, I shall of course give way to him.

Mr. Enright: May I just point out that the popes inhabited the Vatican, not Rome? There is a considerable distinction.
The hon. Gentleman mentioned christian democrats. Is he prepared to say whether he supports the European People's party manifesto for the European elections, which takes a slightly different view?

Mr. Taylor: The hon. Gentleman is never cheap, so I will not be distracted. Let me say, however, that I certainly support the European People's party, with which we are in alliance in the approaching elections—elections that will, I hope, leave a centre-right majority in the European Parliament.

Mrs. Anne Campbell: Will the hon. Gentleman give way?

Mr. Taylor: Will the hon. Lady's intervention be on the Bill or on the pope?

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order. I will answer that question. It will be on the Finance Bill: I do not intend to allow debate on anything else.

Mr. Taylor: I shall stick to the straight and narrow of the Bill. As you were not able to be present in Committee, Mr. Deputy Speaker, I shall tell you that proceedings there were as enjoyable as the past few minutes on Third Reading have been, thanks to the guillotine which enables us to have a proper debate rather than trying to take up time.
As many hon. Members have said, the Bill is a weighty document—too weighty. It has too many clauses and schedules and we should try to make it more digestible in future. However, it contains many interesting clauses, some of which were rather too interesting for the stomachs of some of my hon. Friends in Committee.
I pay tribute to my hon. Friend the Financial Secretary, who rushed us through all the lengthy procedures with great sensitivity. I am pleased that the cogent arguments put by me and by others led to changes in Committee and on Report. I think especially of the changes to capital gains tax on indexation of losses. We expressed strong opinions against the blanket removal of indexation of losses, and I am delighted that, belatedly and in the new tax year, the Government have had second thoughts on that.
There were other difficulties which I shall not mention, but I underline the insurance premium tax because on that the Government clearly listened to the industry, following a hesitant start. We had to move quickly. The industry made representations, and I declare the interest that I declared in Committee, that I advise Commercial Union but do not speak for it. The exercise of a good Committee working with a sensitive Financial Secretary who endeavours to heed outside pressures and Committee pressures has led to a better Bill.
How could I possibly not draw the House's attention to schedule 12, which is all my own work, thanks to the Financial Secretary's encouragement? It includes further measures to encourage employee share ownership, for which I have campaigned for some time. I am delighted that, since the debate in Committee after which my amendments were accepted and broadly embodied in schedule 12, many people in the industry have issued press releases stating that this is a breakthrough and that they look forward to more statutory employee share ownership trusts.
These are distinctive measures and should be taken in the overall context of the Budget judgment which started in November. My principal point is that I am perfectly content that the fiscal judgment in November was right. I do not resile from praising my right hon. and learned Friend the Chancellor for his Budget judgment, which stands up very well. I am not at all put off by the remarks of the hon. Member for Ashfield (Mr. Hoon), who attempted to find devilment in the minutes of the meetings between the Chancellor and the Governor of the Bank of England. As my hon. Friend the Member for Havant (Mr. Willetts) said, as soon as there is open government people try to abuse it.
As I said in an intervention, November's Budget judgment and the judgment in March last year by the former Chancellor have both made sure that we anticipated problems that would otherwise have emerged. If we had not increased taxation in 1993, we would now be talking about what taxes would need to be raised this year, and that

would have been a burden still to be faced. However, by failing to tackle the PSBR, we would have ensured that interest rates would have remained higher than they are. That issue is important when dealing with the market, and it could have had a much more negative effect on consumer confidence than the hon. Member for Ashfield alluded to.

Mr. Betts: As a result of that reasoning, would not the hon. Gentleman agree that, if the Government had been bold and honest enough to increase taxes in 1992 rather than in 1993, the whole process would have begun much earlier? I remind him that at that time the Government forecast was for a £30 billion PSBR deficit.

Mr. Taylor: The hon. Gentleman may recall that, in the Buget debate in 1992, I advocated tax increases but through a broadening of the tax base. The 1992 Budget judgment was made on the basis of what we then knew was reasonable. Any Government have to try to adjust to the circumstances of the time. A responsible Government faced with a PSBR deficit forecast of £50 billion have a number of options. In reply to my intervention, the hon. Member for Peckham (Ms Harman) refused to make any judgment about how she would have tackled the problem.
When faced with a PSBR deficit of £50 billion, one can either increase taxation, reduce expenditure or borrow more, or have a combination of all three. One has to make a judgment and then stand by it. I have said that in November the Chancellor got the judgment right. All the indicators show that the rise in private consumption that has been going on for the past three years is continuing and will continue in 1994.
The slight difference, if there was any, between the Governor of the Bank of England and the Chancellor of the Exchequer was whether there were still inflationary pressures in the economy and not the extent to which taxation might damage consumption. There is inevitably some damage to consumption when new taxes, are introduced. The Labour party has always been much more enthusiastic about introducing new taxes, and it should know about the damage to consumer confidence better than we do.
In the light of the continuation of consumption, one must judge at what point inflationary pressures could grow and at what point there would be a too-rapid take up of capacity leading to a possible increase in the trade deficit. Such judgments call for important calculations, and fiscal policy is a way of restraining or at least controlling growth in consumption. Monetary policy—that is to say, interest rates—is another of the calculations.
The judgment is about right, and I would have been greatly concerned if I had seen a much faster reduction in interest rates, bearing in mind that they have come down from 15 to 5.25 per cent. There is now tolerance, given the wider economic situation, for a further small cut in interest rates with the agreement of the Bank of England and the Chancellor. A large cut, which is sometimes advocated by Opposition Members, would be a dangerous injection of monetary laxity and could then lead to interest rates rising much more rapidly than we would wish. Stability is all.
One of the problems in the British economy has always been the volatility caused by over-reactive politicians. Volatility, and not just the level of inflation, has been our biggest bedevilment, so that investors require a higher yield to protect their investments against the prospect of volatile inflation. Short-term interest rates have fallen and


long-term rates fell at the time of the Budget precisely because it was plain from the figures in the Red Book that borrowing was being tackled. Long-term yields fell and the yield curve was shallower.
More recently there have been one or two nervous phases about the long-term yields. That supports my contention that we can never ignore the prospect of inflation returning. We can never be complacent about inflation: it is a constant battle. Opposition Members should bear in mind that taxation rises this year, the restraint on expenditure and the reduction in the PSBR formed the basis for sustained economic growth with low inflation. That is what Britain has wanted for many years but could not achieve.
I strongly believe that, if it is achieved, at the next general election we shall receive great credit for having taken the measures now, and the hon. Member for Peckham will have to start to change her tune. Almost her entire speech this afternoon fought the most recent general election again. It was not about what we should do now, about what will happen in the future. It was about this or that Minister or this or that Back Bencher saying in their election address in 1992 that the Conservative party believed in low taxation.
We do believe in low taxation, but that does not mean that at any given moment we reduce taxation if it is not prudent so to do. We face up honestly to the electorate if we have to make a different Budget judgment. That is precisely what we have done. We do not expect to be popular for it, but it must be confronted.
As the hon. Member for Dagenham (Mr. Gould), who will soon no longer be with us, clearly stated, for any given moment Labour will have a higher taxing policy than that of the Conservatives simply because the Labour party will always spend more money. There is no way of getting round that. The debate at the most recent general election centred on that. It was not about whether we said that taxation would increase. Labour would have increased taxation to accommodate the greater expenditure it proposed at that time.
For any given greater level of Labour expenditure, Labour's taxation will be greater than that which we would have applied, because we would not spend that extra money. The Labour party must face the electorate with the consequences of its decision, and we must face the electorate with the consequences of ours.

Mrs. Anne Campbell: Does the hon. Gentleman accept that the debate has moved on? It is not about higher taxes but about unfair taxes. Does he agree that in the past 14 years there has been a redistribution using the taxation system, so that those people who are on lower incomes are far more heavily taxed now than they were in 1979 under a Labour Government?

Mr. Taylor: Because average incomes have increased, it is true that it takes a lower multiple of average earnings to reach the top level of taxation than it did under the last Labour Government. I realise that. However, top rate taxpayers now contribute a greater percentage of total taxation than they did under the most recent Labour Government. Yet our top tax rate of 40 per cent. compares with 98 per cent under the last Labour Government—and unearned income tax at 15 per cent. and their top rate of tax

of 83 per cent. Now, in spite of the fact that we have reduced the top rate of tax, more tax is contributed by the top rate taxpayers.
One has to take human reality into account. If one socks people with a 98 per cent. marginal rate of tax, they will not declare their income for taxation purposes. The biggest growth industry under the last Labour Government was accountancy—so reviled this afternoon by one or two Labour Members. The accountancy profession had its boom period because evasion as well as avoidance was a necessity for people who were otherwise being taxed at marginal rates of 98 per cent. The public still remember that; the hon. Member for Cambridge (Mrs. Campbell) should be very careful when she speaks about top rate taxpayers.
Some interesting figures were quoted in one of the weekend newspapers. If someone on average earnings had a £50,000 variable rate mortgage that was taken out in 1988, that person's post-tax, post-mortgage income would have fallen by 27 per cent. in real terms by mid-1990. However, from mid-1990 to the end of last year, the post-tax, post-mortgage income of that same person, with that same mortgage, would have increased by 78 per cent. That is a startling change, and indicates the gearing effect on the economy, and consequently on consumption, of interest rate movements.
It is bad news for obvious reasons, but, once again, proves my point, in terms of the extent of volatility since 1988. It would have been better to have a much more gradual transition, but it cannot be denied that, since mid-1990, a person with such a mortgage has done extremely well, far outweighing the impact of the tax changes that were made in the last Budget. That has an important effect on consumer confidence, and it is important to take that into account when one considers total consumption and the effect on the economy.
The other side of the fiscal balance to taxation is public expenditure. The Government were very courageous in the settlement that was reached for a new control total, and I suspect that they will have to continue to be careful to stay in the Red Book guidance on new control totals in the next few years. There is always pressure to spend more, and I know that the EDX Committee—the Cabinet Committee on public expenditure—has already started to consider the control total, and the way in which it is reached, for the next Budget.
There will always be a tendency for Government Departments to want to spend more. The reason for that is that any Minister worth his or her salt always thinks in terms of inputs. Sadly, the debate has not changed sufficiently to outputs so that the quality of the services provided by Government, which should be the better criterion, is not often used. It usually comes down to the fact that we have spent more money and therefore the service must be better. The language of how one qualifies or quantifies the quality of the service provided by Government must change.
I nevertheless believe that, if we can stay within the control totals, that will be a better balance for public expenditure as a proportion of gross domestic product than there has been for some time, safeguarding the key expenditures, not only social services, but health and education. I believe that that will be recognised by the electorate by the time of the next general election. However, there is no easy way out.


Opposition Members should be careful, because the normal tendency of the Labour party close to an election is to start making promises about the ways in which life will be better under Labour because they will spend a few extra billion pounds. At the moment, the right hon. and learned Member for Monklands, East (Mr. Smith) is telling everyone to keep quiet, but at some point there will be no way of avoiding that problem.
I am not sure what the Labour party has to offer its supporters other than more expenditure and more money spent on the producers of public services. We shall watch with great interest what promises are made and the way in which they vary from the Red Book, because I emphasise that if one gets a variance from the Red Book one must say whether one will pay for it in more borrowing, which means ultimately higher interest rates, or more taxation, which would undermine Labour's entire attack on us.
I have to say to the Labour party that one of the reasons why I am happiest about what the Chancellor did in November was that debt servicing was almost the fastest growing area of public expenditure. Debt servicing accounts for about 7 per cent. of gross Government expenditure. It had to be brought under control, and one understands why the Chancellor took those measures.
Others want to speak and I will finish with a point about employment. One of our difficulties in this country, in spite of the welcome figures today, is that there will not be real employment growth—in other words, a reduction in unemployment—until the economy expands at a rate faster than about 2 per cent. If my judgment is right that the fiscal balance now will not cause too great a cut in consumer expenditure—it will simply ensure that it grows at a more stable level—we must find other ways to reinforce economic growth such as on the capital account for infrastructure projects, involving private finance initiatives on which the Treasury is extremely keen.
To get the economic growth going, we need to consider supply side measures, skill training and so on. It takes time, but it is essential. All those things are necessary to get our economy growing on a stable, non-inflationary basis at a level that will have a significant effect on job creation and employment. Taking the community as a whole, there are many wasted resources through unemployment.
The target for the Government, having got the Budget judgment right last November, is to ensure that they create the type of low-inflation, high-growth economy that will enable us, at the next general election, to face the electorate with a very good prospectus, which I have no doubt they will warmly endorse.

Mr. Macdonald: It is easy to understand why the hon. Member for Esher (Mr. Taylor) complained about our dwelling on the last election. Despite the fact that it was their fourth election victory in a row, Conservative Members are so embarrassed and ashamed that they blatantly lied to the electorate at that election that, rather than glorying in the result, they object whenever we bring up the memory. Despite their desire to wipe the slate clean and make people forget the promises that they made to the electorate at the last election, the public will not forget.
They will register their verdict in the forthcoming local and European elections and their final verdict at the next general election.
My hon. Friend the Member for Hemsworth (Mr. Enright) pointed out how poorly the British economy had done during the 1980s compared with the Italian economy on a range of indicators. One that struck me was the fact that the growth of the Italian economy outstripped that of the British economy. The Italian economy is now larger than the British economy for the first time in 200 or 300 years. That was just one of the dismal milestones which the Government passed during the 1980s.
One of the most dismal milestones of all was the fact that, for the first time since the Elizabethan era, the United Kingdom had a manufacturing trade deficit. That milestone was passed in 1983 and, every year since, our manufacturing position has grown steadily worse.
The hon. Member for Esher touched on the importance of trade and trying to get the balance of payments correct in the future. The balance of payments has not been dealt with in this debate, but was a spectre in previous Finance Bill debates. Three or four years ago, people were predicting a balance of payments deficit approaching the scale of the current public sector borrowing deficit. The recession averted that, but as the economy will inevitably begin to pick up in the next two or three years, I fear that the balance of payments spectre will come back to haunt us, blowing off course all the fine predictions made in the Red Book and by the Chief Secretary at the beginning of Third Reading.
Only one aspect of the Chief Secretary's speech was admirable—its fluency and the skill with which he used language to disguise the seriousness of the economic disasters that have befallen us during the 1980s and into the 1990s. Whenever an event forces a change of policy on the Government, the consequences suddenly become the noblest of virtues. Disasters become triumphs and setbacks become great leaps forward.
That was most noticeable in what the Chief Secretary said about taxation. Previously, the Conservatives were the party of low taxation. Now, it is a virtue that they are increasing taxation and the Chief Secretary takes pride in the fact that the Budget will increase taxes by their greatest level in peacetime history.
In the midst of all those changes of course and twists and turns, it is important to maintain a perspective and not allow the public to forget what has happened in the past four or five years. I wish to do that on just two of the issues raised in the debate so far: public spending and taxation. Public spending featured heavily in the Chief Secretary's speech. Instead of the traditional goal of low taxes, his aim in the next three or four years is to rein back public spending and keep the lid on the spending binge on which the Tories embarked a year or two before the last election.
It is important to put the current spending position into a historical perspective. In the late 19th century, public spending as a proportion of GNP was a little less than 10 per cent. Most of that public spending was incurred as a result of the empire paying off debts from previous empirical wars—the Boer and the Crimea—so it was current expenditure rather than investment in capital projects for the future. With the coming into power of the radical Liberal Governments of the early 20th century, particularly with Lloyd George's people's Budget, there was a marked increase in Government spending, which rose to about 5 per cent. of national wealth.


After the first world war, with the further establishment of basic programmes of social protection and the strains imposed on them by the recession of the 1920s followed by the great depression, public spending as a share of national wealth rose to some 25 per cent. It was maintained at that level because of wartime spending until the election of a Labour Government in 1945.
The Labour Government of 1945 embarked on a major programme of public expenditure, particularly on the welfare state and national health service, which increased the Government's share of national wealth by some 10 percentage points and brought it up to 35 per cent. The Conservative Governments of the 1950s inherited that level of public expenditure and never rolled it back.
Throughout the 1950s and early 1960s, spending stayed at a more or less steady plateau of about 35 per cent. of GNP. With the elections of the Labour Governments of the late 1960s and the mid to late 1970s, public expenditure increased further again, by about 5 per cent. on each occasion.

Mr. Geoffrey Clifton-Brown: While the hon. Gentleman has been making his long historical analysis of GDP as a percentage of our total wealth, I have looked up the figure in the Red Book. Will the hon. Gentleman explain to the House why public expenditure as a proportion of total GDP reached the staggering figure of 49.25 per cent. in 1975?

Mr. Macdonald: If the hon. Gentleman looks at the Red Book at page 23—I think that is the page to which he referred—he will find that the statistics that I am giving are absolutely right. Between 1974 and 1979, public spending as a proportion of GNP averaged about 45 per cent.—at its highest it was 49 per cent. In the early 1980s—at its highest under Lady Thatcher—it was 47.5 per cent. The difference is not that great, which is the point that I am endeavouring to make.
When the hon. Gentleman intervened, I had not reached the mid to late 1970s. I was about to say that, from the plateau of 35 per cent. in the 1950s, under the first Wilson Government in the late 1960s, public spending increased by about 5 percentage points to a new plateau of about 40 per cent. The later Labour Government increased it to a subsequent platform of about 45 per cent.—sometimes higher, sometimes lower. It sometimes went up to as high as 49 per cent. and was sometimes as low as 44 per cent., as when the last Labour Government left office.

Mr. Dorrell: The hon. Gentleman keeps referring to a figure of about 45 per cent. I shall help him to be a bit more accurate. The average for the five years of the last Labour Government was 46.5 per cent. of national income. The peak in this cycle is shown in the same table as 45 per cent. of national income. That is the difference between the parties.

Mr. Macdonald: I am glad that the Financial Secretary has put that on record. That was exactly the point that I was endeavouring to make. We have had 15 years of radical Conservative government and the Financial Secretary tells me that the difference in the figures is about 1.5 per cent.

Mr. Dorrell: I was comparing the average over the cycle of the last Labour Government—46.5 per cent.—and the peak in this cycle, under this Government, of 45 per cent. The plans in the Red Book show how we intend that figure to fall to 41 per cent.—roughly the same as the 40 per cent. figure of the late 1980s.

Mr. Macdonald: The Financial Secretary cannot rely on plans; he must rely on the record. The record shows that the peak under the last Labour Government was 49.25 per cent., and the peak under this Government has been 47.5 per cent. The Labour Government exited with a figure of 44 per cent. Under this Government—committed to 15 years of radical cost-cutting under Lady Thatcher and the current Chief Secretary—the figure is 45 per cent., which is 1 per cent. higher than when the Labour Government left office.
The point that I was trying to make—I think that the Financial Secretary has helped to make it—was that of the simple and obvious failure of all Conservative Governments to roll back the share of state spending as a proportion of national wealth to any serious degree. I know that the Red Book speculates on rolling the figure back to 41 per cent., but the Conservatives have had 15 years of attempts to roll back the share of state spending, which is now higher than when the last Labour Government left office.
When one compares the impact of successive Conservative Governments with the impact of Labour Governments, one sees that in the late 1960s there was an increase of about 5 percentage points and in the late 1970s there was an increase of about 5 percentage points. In 1945 there was an increase of about 10 percentage points. Compared with those considerable impacts on the share of public spending in national wealth, 15 years of Conservative Government have had a negligible impact, as page 23 of the Red Book clearly shows.
I make this journey into the past to try to put into perspective what I regard as empty rhetoric—the high-taxation, high-spending claims of opposing parties. The reality is that Britain, in line with most western European Governments, is probably stuck with a share of public spending as a proportion of national wealth of around 45 per cent. in the medium to long term. Nothing that the Conservative Governments of the past 15 years have done has altered that by any appreciable margin and it is hard to credit that anything they do in future will have any impact.

Mr. Dorrell: The hon. Gentleman is advancing an interesting argument. I certainly do not accept his proposition that under the present Government public expenditure will remain at 45 per cent. of national income, but if that is his assertion and view of what would happen under a Labour Government, perhaps he will tell us how a Labour Government would finance the extra 4 per cent. of national income that he wants to see accounted for by public expenditure. He would not want it to be borrowed indefinitely, so he owes the House an explanation of how the revenue gap of 4 per cent. of national income that he has opened up would be filled.

Mr. Macdonald: I did not say that I wished to see an extra additional 4 per cent.—

Mr. Dorrell: Yes, you did.

Mr. Macdonald: I simply pointed out that the highest figure under the last Labour Government was 49 per cent. and that the highest figure under the Conservative Government is 47.5 per cent.—the difference is very marginal and cannot really sustain the rhetoric that we have heard. I have not said at any time that I wished to see public expenditure increased to 49 per cent.


I was arguing in favour of fixing global levels of public expenditure and that trying to measure the success or failure of a Government by whether they increase or reduce the figure by 3 or 4 per cent. is fatuous and beside the point. That is not what we should be looking at when considering public spending.
Unfortunately, that is the obsession of the Chief Secretary. The whole test of whether his strategy will succeed over the next four or five years is apparently whether it will roll back the share of public expenditure in national wealth.
At the start of the Finance Bill, the Chief Secretary referred to the United States, where the ratio is around 35 per cent.—the Chief Secretary used the figure of 38 per cent. That is certainly significantly lower than the European average and lower than it is in Britain. He implied that that was his long-term target.
Of course, the right hon. Gentleman neglected to point out that the key difference between the United States and the countries of western Europe is that health care in the countries of western Europe is largely socialised. That accounts for much of the difference between the United States and Europe. He will also be aware that the current United States Administration has presented a fairly comprehensive package of health care reforms to Congress and the congressional budget office has judged that the impact of that package would be to increase federal expenditure in the United States by some six or seven points.
Therefore, the Chief Secretary's case that the United States is somehow a model that we should be emulating and that we should be slashing our expenditure back to American levels fails to take into account what is happening now in the United States, and the difference in health care treatment.

Mr. Willetts: May I commiserate with hon. Member and assure him we were looking forward to hearing his remarks and drawing on his experience in the Finance Bill Committee, but these lengthy historical, statistical digressions on public expenditure ratios seem to be detaining him and the House.

Mr. Macdonald: The hon. Gentleman seems to object to the point I am making because he does not like to admit that 15 years of Conservative Governments, by their own objectives and aspirations of cutting spending and taxation as a proportion of national income, have been a complete and utter failure. That is what both tables on page 23 of the Red Book clearly show and that is what Conservative Members are trying to get away from.
The Conservative claim that it is the party of low taxation is disproved by the figures on page 23 of the Red Book, and a number of my hon. Friends have illustrated that fact during their speeches this evening. I made the point by way of intervention that, although the Chief Secretary is increasing taxes across a range of areas, it is not as though there are no tax cuts on offer this year.
The Local Government etc. (Scotland) Bill introduces the abolition of sporting rates. The measure will cost the Exchequer some £2 million and the benefits of that tax cut, in a year when everyone else faces increased taxes, will go exclusively to the proprietors of large estates north of the

border. People such as the Duke of Buccleuch, the Countess of Sutherland and the Earl of Thurso will share the £2 million between them.
That hypocrisy illustrates that the real argument between the two sides of the Chamber is not about global increases in the total amount of taxation or total expenditure; rather, it about striking a balance within taxation and expenditure. It is a question of how taxes are raised—whether they are raised fairly from the people who are most capable of bearing the burden of taxation. It is a question of whether money is spent on items which produce growth in the economy in the long term, such as housing and public infrastructure, or whether it is spent on items such as employment benefits which pay for people to be idle.
That is the real difference between the two sides of the House. It is not a question of global totals; it is a question of fair taxation and sensible spending. That is the message that we will be taking to the upcoming European elections and to the next general election.

Mr. Willetts: We are now coming to the conclusion of many months of deliberation on the Finance Bill, in which we have heard two types of contributions from the Labour Benches. First, we heard nit-picking comment on the detail of particular clauses. In one memorable sitting, a member of the Labour Front-Bench team managed to spot several printing errors in the Bill—that led the Financial Secretary to congratulate him on his skill in proofreading. When Labour Members were not proofreading, they engaged in wide-ranging ritual denunciations of any and all tax increases, but we sadly missed anything in between. There was no meaty and substantial engagement on the real questions of tax policy. We were not offered any enlightenment as to what a Labour Government's approach to taxation would be.

Mr. Nicholas Brown: The hon. Gentleman raises an interesting topic. We get opportunities to discuss the Labour party's approach to taxation, but not while we are scrutinising the Finance Bill in Committee.

Mr. Willetts: The scrutiny of the Bill in Committee was either pernickety or ritual denunciations, but we did not have the substantial debate on some of the major aspects of tax policy for which the clauses provided ample opportunity.
Despite the Labour party's failure to set out its views on tax policy during the many hours spent in Committee, the broad outlines of the difference between the two parties is clear if one reflects on the way in which a party in government responds to the inevitable effects of a recession on the public finances. The real test of a Government's ability to steer the economy comes not when we are enjoying the benefits of the good times, when the economy is recovering and when one is in the benign phase of an economic cycle but when we are in the difficult times and recession drives public finances into deficit.
There is a clear contrast between the approach taken by the Labour Governments in 1974, 1975 and 1976 and that taken by the Conservative Governments in 1980 and 1981. Everything that we have heard in the debate on the response to this recession and its impact on public finances shows that the difference in the response to the two previous recessions still obtains.


In 1974 and 1975, the then Labour Government tried to borrow their way out of the recession and out of the enormous deficit that occurred as a result of a fall in tax revenues and large increases in public expenditure. Their attempt to avoid the difficult decision to increase taxes to bring down the public sector borrowing requirement led, of course, to the notorious intervention by the International Monetary Fund when the City and the international financial markets ran out of tolerance for the Labour party, and a high level of borrowing was required. We ended up with cuts in public expenditure programmes—6 per cent. real reductions in one year—and those cuts were more draconian than any that we had experienced in the post-war period.
The alternative, which was the approach taken by the Conservative Government in 1980–81, was to do the painful but necessary thing and raise taxes to reduce the PSBR so that we did not run out of road and were not still trying to borrow when we had lost the patience of the markets. That was the right decision to take in the recession of 1980–81, and the sustained economic recovery of the 1980s proved just how right it had been—we had the longest peacetime economic recovery that we have ever enjoyed.
It is perfectly clear that, faced with the consequences for public finances of the recent recession which proved to be longer and deeper than forecast, the Government are repeating the step that it was necessary to take in 1981—they are raising taxes. Just as then, despite all the catcalls and jeering at the time, that step laid the basis for a sustained strong economic recovery. We can be confident that getting the public finances in order now will similarly lay the basis for an economic recovery in the 1990s.
The trouble is that the Labour party has made no serious attempt to engage in any debate about those issues. Perhaps I can inform my hon. Friends who are here but who were not members of the Committee that Labour Members instead regularly read to us extracts from the manifestos on which Conservative members of the Committee had fought the election.
There were times during the longueurs of the Committee when I found my mind wandering to the poor Labour researcher who had possibly been tempted into working for a member of the Labour Front-Bench team by the prospect of being able to think about economic or tax policies but who was instead lumbered with the task of reading Conservative Members' election manifestos. Perhaps through you, Mr. Deputy Speaker, and Hansard I might speak to this unknown researcher and commiserate with him or her for the appalling level of job satisfaction offered by Labour Front Benchers. I hope that, next time, he or she will be allowed to research some of the meaty questions relating to tax policy that did not detain those on Labour's Front Bench this time.

Mr. Ian Taylor: I must correct the impression given by my hon. Friend. Any offer to work for the Labour party can be enhanced only by including in it the opportunity to read Tory election manifestos rather than being forced to read Labour party documents.

Mr. Willetts: That is a very good point. One is led to wonder whether the job of dealing with such dangerous, subversive literature had to be divided among several Labour researchers in case prolonged exposure to it led to

defections to the Conservative party. Who knows what special measures had to be taken to handle that dangerous propaganda? 
In the remaining minutes of my speech I shall reflect a little more on the sort of economic recovery to which we can look forward because of the tax measures in the Bill and in the previous Budget in 1993. I am unashamedly optimistic about the prospects both for inflation and for real economic growth. All the evidence suggests that the Government are enjoying considerable success in holding inflation down not just within the 1 to 4 per cent. target range, but down towards the lower end of that range.
The figure for the growth in M4, for example, which is in the middle of its target range, suggests that some of the anxieties which have been apparent in the City over the past few weeks about the future course of inflation do not appear to be well founded. In fact, the problem appears to be that there are still macho managers in British industry who want to plan very high rates of return on their investments because they are making pessimistic assumptions about the future course of inflation, which seem unlikely to be borne out by events.
When firms and senior managers proudly say, "We are looking for a rate of return of 17.5 per cent. on our investment," when the British economy can look forward in the medium term to an inflation rate in the 1 to 4 per cent. range, that is no longer a sensible way of running a business. It shows that the opposite of money illusion—inflation anxiety—is still persistent although, given the Government's monetary and fiscal stance, it is not justified.
The crucial indicator that ties together prospects for inflation and for the real economy is, of course, spare capacity. The hot topic nowadays is: what is the spare capacity of the British economy? If we can get a feel for the spare capacity that is still stretching out before us, we shall be able to get a feel for how rapidly we can expect the British economy to grow without suffering the old problems of high inflation.
All the evidence suggests that we have substantial spare capacity. That is not a matter of taking a snapshot picture and measuring the size of under-used plant and industrial capacity at a particular moment. It is a matter of looking at indicators such as skilled labour. One of the most impressive pieces of evidence is that throughout the recession employers kept investing in training their employees, and now that recovery is under way, there has been no significant increase in the number of firms reporting difficulties in finding skilled labour.
The old problem of skilled labour shortages emerging in the early stage of an economic recovery appears less serious this time than in the past, which lays to rest some of the scares put about by the Opposition about training and the quality of the British work force.

Mr. Alan Duncan: While my hon. Friend is talking about spare capacity, does he accept that one of the major triumphs of economic management over the past two years, which the Budget specifically addresses, has been the rise in fixed-term lending over five, 10, 15 and even 20 years? Does my hon. Friend accept that that significant change in lending arrangements will allow businesses and individuals to plan for the long term without being subject to the strange amplitude of interest rate costs?

Mr. Willetts: I agree with my hon. Friend. One of the curious features of the British system for financing industry, which I know the Financial Secretary to the Treasury is currently reviewing, is the fact that we have equity investment and short-time variable-rate bank lending, but that we have failed to secure something in between—fixed-term, fixed-interest corporate debt.
The reason for that is obvious. When an economy suffers from high and variable rates of inflation, people resort to equity finance, or variable interest rate finance, because they cannot obtain the classic form of debt finance that my hon. Friend described. It should be one of the many advantages that we secure as a result of this economic recovery, with the prospect of sound public finances and continuing low inflation, that the corporate bond market at last revives. That will lay the basis for an increase in business investment.
We have heard a lot today from Labour Members about what will happen to consumption as a result of the tax increases under the Bill and under the 1993 Budget. It is perfectly clear that if there is a significant increase in taxation, there could be some impact on consumption. However, the question is also what will happen to investment. If, over the coming year, business investment improves dramatically, with business gaining confidence as it sees a sustained economic recovery opening up in front of it, and improving prospects in the American economy and, let us hope, in the continental economies, Britain will continue to enjoy an economic recovery.
That recovery will be based on improvements in business investment, improvements in exports to growing economies around the world and less dependence on increases in domestic consumption than there inevitably was in the early stages. As the Bill lays the basis for an economic recovery that will be well balanced and sustained, I am confident that the House will give it a Third Reading tonight.

Mr. Nicholas Brown: Not for the first time, I have the opportunity to follow the hon. Member for Havant (Mr. Willetts) in debate; it is always a pleasure.
The Conservative manifesto sets the parameters for this debate. The Conservative party promised the British electorate lower taxes and a prudent approach to borrowing. It said that that did not mean that public spending must fall—quite the reverse. That is the context in which this year's Bill should be judged. Taxes have risen. The Government's approach to borrowing could hardly be described as prudent, certainly not by the hon. Member for Havant. The Chief Secretary has set the tightest public spending parameters in recent history, and is boasting about it.
The House will be interested to learn that the first Bill to be called a Finance Bill became law in 1894, so this year is the centenary of Finance Bills. [HoN. MEMBERS: "Oh."] It obviously comes as a grave disappointment to the House that the Government have not organised celebrations for this centenary; they seem to have overlooked the anniversary.
No street parties are being organised to celebrate the tax increases, and there is no Victorian re-enactment of the Government's prudent approach to public borrowing. There is no reconstruction of late 19th-century workhouses to underpin the Government's approach to public

expenditure. I have to disappoint my hon. Friends by telling them that there is not even a letter from Larry Whitty inviting the Labour party to join in. We all understand why, in spite of the undoubted talent of Sir Tim Bell, the Government have chosen, no doubt in shame and embarrassment, to overlook the Finance Bill centenary celebrations.
In fairness to the Government, I point out that they have celebrated in one way. They have produced a bumper edition, running to two volumes—the longest Finance Bill ever. It has been criticised for its length, for its incoherence, for its opaque drafting and for its complexity. We as a House have been criticised, not unjustly, for the way in which we have dealt with its contents. I do not accept the broad approval given by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) to the way in which we handled the Bill. I point out that his own record of truancy in Committee was exceeded only by that of the Chief Secretary.

Mr. Portillo: Will the hon. Gentleman give way?

Mr. Brown: Of course I shall give way. I shall make more jokes at the right hon. Gentleman's expense later.

Mr. Portillo: I may not have spoken much in Committee, but I was a determined attender.

Mr. Brown: I accept that, when the right hon. Gentleman was in this country, he attended our proceedings. However, he was not fully engaged in the debates. I recall him going through his briefcase and
signing coloured photographs of himself with the words, "To Michael, in frank admiration—Michael", with a little kiss at the bottom.
I accept that the Chief Secretary's absence from our proceedings was wholly due to the fact that he was visiting South America. Of course, it is not unknown for politicians with extreme right-wing views to ensure that they keep their connections with South America in case they need an escape route. I make no criticism of the Chief Secretary for that. Indeed, I wish him well if he ever feels the need to flee the country.
The Labour party accepts, and always has accepted, the case for informally timetabling the taxes management part of the Bill, and for taking the main tax changes on the Floor of the House. Labour Members also accept that there is a good case—on that matter, we make common cause with the right hon. Member for Berwick-upon-Tweed—for a less adversarial Select Committee type of proceeding on taxes management issues. What happened in practice, Mr. Lofthouse, is that the Government imposed a guillotine on the whole of the proceedings, day by day, in the most heavy-handed manner.

Dame Elaine Kellett-Bowman: You should address Mr. Deputy Speaker.

Mr. Brown: I always seem to provoke the hon. Member for Lancaster (Dame Elaine Kellett-Bowman) in such exchanges. It is not intentional.

Dame Elaine Kellett-Bowman: I was only saying that the hon. Gentleman was forgetting that he was addressing the Chair.

Mr. Brown: You, Mr. Lofthouse, let it go, but, of course the hon. Lady is quite correct. I should address you, Mr.Lofthouse, as Mr. Deputy Speaker. I am grateful to the


hon. Lady for correcting me on that matter. It is probably the only matter in any such debate on which she has managed to correct me. Nevertheless, let me proceed with my criticism of the way in which we were required to deal with some of the matters.
The Government manipulated the guillotine, which found, Mr. Deputy Speaker, that we had ample time to discuss the consequences of the European Commission's third directive on life insurance. Indeed, we had a surfeit of time to discuss that not especially controversial matter. However, when we came to controversial clauses—the Financial Secretary referred earlier to what was then clause 241, which he eventually, quite rightly, withdrew—we came up against the guillotine and found that the time for Labour and Conservative Members to speak was dramatically restricted. That is a stupid way in which to conduct our affairs. If such matters are to be timetabled in future, there should be much fuller discussion of how the timetabling should be managed in practice.

Mr. Stern: Will the hon. Gentleman give way?

Mr. Brown: I shall give way to the hon. Gentleman later, but I would first like to get through some of my comments.
The Government ordered the debate so that we had to agree to clauses which enacted schedules before we were able to discuss the contents of the schedules themselves. They abused the guillotine by encouraging their own Back Benchers to filibuster, thus avoiding the burden which should rightly be borne by Ministers, of explaining clauses to the Committee.
The Government sulked when we kept them back to vote on those clauses, and drew inferences from the fact that we voted against those clauses that should not have been drawn. They steadfastly refused to let us discuss VAT on domestic fuel, when we all knew that the electorate would have liked us to discuss it and have another vote on it.
They tabled last-minute amendments in the name of Conservative Back Benchers and accepted them, thus smuggling them into the Bill. It was supposed to be the first Finance Bill under the new unified Budget process. In fact, the Government have ensured that there is even less consideration of the wider context, including public expenditure, than usual. The House has not discussed departmental spending plans since May 1991. It was some unified Budget.
We complained about those points during the passage of the Bill. Conservative Members complained about procedural issues as well, and outside bodies that like to make representations to us complained that it was unsatisfactory. Some of those reservations were shared by Conservative Members—[Interruption.]—and I shall give way to one that I think shared some of them.

Mr. Stern: Does the hon. Gentleman agree, as a fellow veteran of many Finance Bills, that, for the first time, the effect of the procedure which he is deprecating and in which the Labour party refused as a matter of principle to take part, was to produce an even debate from both sides of the Committee, which we have never had before?

Mr. Brown: I am in favour of an even debate from both sides of the Committee, but that was not what we were treated to in our proceedings. I have said that we would like to agree workable timetable arrangements. I would have

liked to refuse to attend the Business Committee on principle, but I was not given my notice until just before it was due to meet. I did not even have the opportunity to refuse on principle to attend.
Many Conservative Members share the Opposition's disquiet about the way in which the arrangements worked in practice. They blamed the Opposition Whips Office, and someone they referred to rather darkly as Don. We, the Opposition, take that to be a reference to Don Portillo, who we feel is largely responsible for imposing what used to be called Spanish practices on the way in which we proceeded. In Committee, Labour Members would try to make progress only to be told, manana, or the day after manana.
The Chief Secretary took a relaxed view. If my hon. Friends feel despondent about the way in which we proceeded in Committee, I should say that it has not all been in vain. When we began our proceedings in Committee, the Finance Bill, if someone wished to purchase the two volumes rather than get them free from the Vote Office, cost £27.30. Its value has now risen to £29.45. I am sure that that is the result of the value that Labour party scrutiny has added to the document. Given the passage of time, however, the increased price may be the result of inflation. The Committee sat for so long that, if I become any older, it may be that I shall not qualify for medical treatment in a Tory trust hospital.
All Chancellors of the Exchequer, like shadow Financial Secretaries, enjoy their little jokes. Last year, the then Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), made special mention of the tax increase on small cigars, the subtext being "as smoked by you know who". This year, "you know who" got his own back by increasing tax on cigarettes and cheap champagne.
The Chancellor was less successful in justifying the impact of this year's Finance Bill on his fellow citizens. In a desperate effort to explain, he grabbed the first analogy that came into his head, just as we have often seen him do during Treasury questions. Predictably enough, it was about beer prices. Equally predictably, it has not really helped to explain the impact of the Government's tax rises. Three pints a week; a week is thus a very short time in politics.
The Opposition had our worst fears confirmed when we learned that the Chancellor drinks in the sort of places where beer costs £4.20 a pint. How much in character it is for the Conservative party to say to the electorate before the election, "We will get the drinks in," only to say after the election, "Oh, we borrowed the money for the last round. It's your round now." That leaves the bemused British taxpayer to get in a £6 billion round—the most expensive round of drinks in British history.
I want to be fair to the Government and, as the Financial Secretary would be the first to acknowledge, helpful as well. That being so, I offer the House an alternative—and, I think, a better—analogy to help explain this year's Finance Bill. I think that the Bill and its background should be restaged as a modern reworking of Macbeth.
The irresolute and over-ambitious Macbeth, steeped in wrongdoing, could be played by the Prime Minister, having achieved high office not by murder but by toothache. Baroness Thatcher would have to be Duncan, but the Chief Secretary could stand in for her—I know that he has always wanted to. The right hon. Gentleman could play Lady Macbeth. The Chancellor and the President of


the Board of Trade would quarrel over which of them should play Malcolm. My view is that eventually the role will be played by a more genuine Scotsman.
The scene where Macbeth hears voices reproaching him for the past would provide an easy way of explaining the background to the Finance Bill. The voices would cry out things such as, "We have no plans to increase VAT"; "There will be no VAT increase"; "Government has no higher duty than to protect the value of the currency"; "I will stand by Norman Lamont, David Mellor, Michael Mates and Tim Yeo"; "We shall maintain mortgage tax relief"; "Government should not gobble up all the proceeds of growth"; "Britain is at the heart of Europe and is a strong and respected partner"; "Those who create prosperity should enjoy it through lower taxes". "Membership of the ERM is now central to our counter-inflation discipline". Finally, to round off that metaphysical scene, there should be an old woman's voice cackling derisively from another place, "We must stand by John, we must stand by John." I offer that as a much more convincing metaphor for what has been going on.
There is another useful scene in this modern production which would be helpful to Tory Members—the scene where Macbeth stares at his empty chair and then sees the spectre of his former comrade in arms, cruelly and bloodily despatched at his own instigation, staring reproachfully back at him. Who could we find to play Banquo?—the right hon. Member for Kingston upon Thames (Mr. Lamont)!
This is the first Finance Bill since 1987 that we have had to do without the right hon. Gentleman. We miss him. The Chief Secretary pointed to Norman's tax rises, seeking to distance himself from them and, indeed, present himself as a sort of successor regime, while keeping the resources. His argument seems to go as follows: the Conservatives put taxes up; the Labour party told the electorate about it; the electorate will never forgive the Labour party. That is not the sort of logic that one expects from a future leader of the Tory party.
My time is running out, so all the other jokes must be saved for next year's Finance Bill. However, I cannot conclude my contribution to the debate without referring again to the tests which the Chief Secretary set us. Having said that he set the tests himself, he then said that we have not passed them. I shall present him with a test that he set himself earlier. At election time, he told his constituents:
Conservatives want to cut your taxes … higher tax and national insurance would hit those who work harder and do overtime.
If he still believes that, I invite him to do the only thing he can—join us in the Lobby tonight and vote against the Third Reading of the Bill.

Mr. Dorrell: I congratulate the hon. Member for Newcastle upon Tyne, East (Mr. Brown), as ever, on the quality of his jokes. I assure him that there will be ample opportunity in future Finance Bills in this Parliament and, indeed, in future Parliaments for him to deliver his jokes from that Dispatch Box and to entertain the House with his speeches, as he has grown accustomed to do with considerable aplomb.
It cannot happen often that debate on the Third Reading of a Finance Bill provides the opportunity for an agreement

to emerge between the hon. Member for Peckham (Ms Harman) and my hon. Friend the Member for Bridlington (Mr. Townend). However, in the debate today, the two of them agreed on something important: that the Bill would represent the defining moment and the turning point in the progress of this Parliament. I agree with both of them. The debate will prove to be a turning point in this Parliament because the Bill lays the foundations for secure and sustained recovery that will continue for several years to come—well beyond the date of the next general election. That is the basis on which the Government will be re-elected.
That is not the only basis on which the Bill will prove to have been the defining moment of this Parliament. Not only does the Bill contain the clear basis of sustained recovery and the Government's plans for delivering that, but, during the passage of the Bill, the Labour party lost any credibility as a serious contributor to economic debate in Britain. The Bill serves to strengthen the Government's position and set the foundations for economic recovery. It has served to shoot to bits the economic credibility of the Labour party.
I shall deal first with the question of sustained recovery. My hon. Friend the Member for Havant (Mr. Willetts) and my right hon. Friend the Chief Secretary rightly laid considerable stress on the secure course of recovery that is provided for in the Bill. It is provided for because my right hon. and learned Friend the Chancellor of the Exchequer set out to deliver in his Budget a plan
to sort out once and for all the public finances of Britain".
The Budget delivered by my right hon. and learned Friend on 30 November showed clearly how he intended to deliver that objective. It showed first how he intended to deliver proper control of public expenditure.
As the House knows, my right hon. and learned Friend was using a system established by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) in his days as Chancellor in the early months of this Parliament. That system will establish securely proper control of the share of national income which is taken by public expenditure.
As used in the last round, the system delivered reductions in public expenditure plans of £10 billion and allowed my right hon. Friend the Chief Secretary to publish plans which, during the next three years, will deliver an average growth in the the total of public expenditure of 0.25 per cent. There will be less than I per cent. growth in public expenditure during the full three years of that plan. That was the first key element of re-establishing proper control of public finances.
The second key element, which we all know is not enormously popular but which is indispensable, is the revenue-raising measures that were included in the 30 November Budget, following on from the Budget of my right hon. Friend the Member for Kingston upon Thames last March. [HON. MEMBERS: "Tax-raising measures."] They were tax-raising, or revenue-raising, measures.
The reason for that is clear and is straightforward. When public expenditure plans have been made, we must then address the question of how to finance them.
The Government believe unequivocally that it is better to tax than to borrow, and that is one of the differences between this party and the Labour party. Where we set out public expenditure plans, we also set out plans for


financing that public expenditure on a secure and sustainable basis. That was the second element in my right hon. and learned Friend's Budget plan.
The third element is that on which my right hon. and learned Friend is able to count because he has controlled public expenditure and because he has set in place secure and realistic tax plans. That element is the growth which will continue right through the rest of this Parliament and beyond. My hon. Friend the Member for Ludlow (Mr. Gill) was right to stress the opportunities for this country to trade its way to improved living standards and improved prosperity. It is because the Budget sets out the disciplines which underwrite that trading success that we are able to look forward to that in the years ahead.

Ms Eagle: The Financial Secretary said that the Conservative party prefers to tax rather than to borrow. Will he explain how we have ended up with the largest public sector borrowing requirement in history and the greatest tax increases since 1945?

Mr. Dorrell: The hon. Lady's statistics are wrong. The PSBR borrowing total for last year which was published today is, by a significant margin, a smaller share of national income than was incurred through the 1970s. The key difference between what happened then under the Labour party and what will clearly happen under the Government is that, as the economy recovers, so borrowing will be brought down and be eliminated by the end of the decade. That is the difference between the plans of the two parties.
The hon. Member for the Western Isles (Mr. Macdonald) was right. It is not just a question of how much one taxes—it is a question of how one taxes. The hon. Gentleman used the word "fair", but he did not explain to the House how it is fair to tax at 83 per cent. the incomes of those who hold important entrepreneurial posts in Britain. How can one build a successful economic recovery where key decision-makers in Britain keep 17p of every pound they earn? The Government have changed that and we are unapologetic for having changed it. As a result, not merely that individual, but the whole community benefits as a result of a more vibrant, growing economy.

Mr. Macdonald: At a time when every single ordinary person in the country is having to pay extra taxes, how is it fair and right that landed aristocrats should be receiving and sharing out £2 million worth of tax cuts? Does not that expose the hypocrisy of the Government's position?

Mr. Dorrell: The hon. Gentleman thinks that he is on to a good point with that £2 million, but I am talking about a tax system which underwrites economic success.
I would like to know from the Opposition how it is fair to have a tax system which taxes the marginal income of savers at 98 per cent. The Opposition claim to be interested in investment and saving. How can one encourage savings and investment in the British economy when the return from savings is taxed at 98 per cent? It is because Labour has a narrow, myopic view of what fairness represents that it entirely failed to deliver a vibrant economy during its years in office.

Mr. Nicholas Brown: The answer to the Financial Secretary's question is that we do not believe in anything of the sort either.

Mr. Dorrell: Then it is slightly odd that the Labour party maintained as much during its years in power.
The Government have made clear the importance that they attach to low marginal tax rates and their commitment to such rates. We believe that that is the way in which to deliver a successful market-oriented economy.
I have said that the Bill marked not only the moment when the Government set out their plans, but the moment when the Labour party lost its credibility. In fact, many Opposition Members know that to be true. My hon. Friend the Member for Esher (Mr. Taylor) quoted the hon. Member for Dagenham (Mr. Gould). This is a sad moment for me: the hon. Member for Dagenham was my tutor at Oxford, and I have always enjoyed quoting his comments, but I fear that this may be one of the last occasions on which I am able to do so.
It is an important point, however. As my hon. Friend the Member for Esher recalled, the hon. Member for Dagenham said:
I think the Labour Party ought to accept … that we will always be likely to have a higher tax burden than our opponents because we believe in public spending.
That is why Opposition Members are uneasy about the debate that has been going on over the past few months: they are aware that it is dishonest, and that they are involved in an argument that means that they cannot deliver to the British people.
Not only the hon. Member for Dagenham knows the truth of the matter; the hon. Member for Hartlepool (Mr. Mandelson)—who was here a few moments ago, but has now disappeared, perhaps wisely—knows it as well. He is making himself unpopular with his colleagues. He was recently quoted in Tribune as saying:
As we all know, the question which matters is 'what will Labour do instead?'
That question—the Mandelson question—is one that we have asked throughout the debates on the Bill, but we have received no answer whatever.
I must not be unfair; we have been given the occasional hint. Last August, the hon. Member for Dunfermline, East (Mr. Brown) was heard to talk wistfully about the attractions of low tax: Labour, he said, might not wish to tax for the pure hell of it. I am not sure why the hon. Gentleman felt that he could speculate; perhaps he thought that he could talk about such matters safely while the hon. Members for Sheffield, Brightside (Mr. Blunkett) and for Oldham, West (Mr. Meacher) were on holiday abroad.
The hon. Member for Peckham had a rather more serious go in September, to which my right hon. Friend the Chief Secretary referred. Earlier in the debate, she sought to dismiss it, but I now have a copy of the document on which my right hon. Friend commented. It is a report by the London Policy Forum, which was set up by the regional executive of the Greater London Labour party. I shall not weary the House with the long list of names comprising that group, but the working party chair of the economy group was none other than the hon. Member for Peckham.
The report states:
Mortgage interest tax relief should be phased out for existing"—

Ms Harman: No.

Mr. Dorrell: It is no good saying no; I have the words in front of me.
Mortgage interest tax relief should be phased out for existing borrowers. In its place, new borrowers would receive a Mortgage Benefit calculated according to their means.

Ms Harman: Rubbish.

Mr. Dorrell: The hon. Lady may say "Rubbish", but it is on page 37 of the document published by a committee of which she was a member.

Ms Harman: rose—

Mr. Dorrell: Before the hon. Lady intervenes, let me tell her that she cannot simply dismiss this as something that is unimportant in the affairs of the Labour party. However, I am happy to give way.

Ms Harman: The document from which the hon. Gentleman is quoting is from an unpublished draft by a working group of which I was not a member and whose proposals were thrown out. The public and the House can believe nothing of what the Government say about their own proposals, let alone what they say about ours. The Minister has engaged in downright and deliberate misrepresentation and he should withdraw what he has said.

Mr. Dorrell: I have no intention of withdrawing. I shall quote from the covering letter to the document from Mr. Terry Ashton, who is the general secretary of the Labour party in Greater London. He is not, one would have thought, an unimportant figure in the Labour party. He said:
The London Policy Forum is being used as a model for regional policy forums in other parts of the country. With its detailed analysis of the problems and challenges facing London, and its many innovative ideas,"—
including presumably this one—
I am sure that this document will be of major benefit to Labour's campaign to win over voters in the capital.
I am certain that it is of major benefit to somebody, but I doubt that it is of major benefit to Mr. Terry Ashton or his friends.
Throughout our debates on the Bill the Opposition have tried to present themselves as being against tax increases, but everybody knows that is an implausible argument. People know that tax and spending form the same issue. They do not take seriously a party that seeks to argue against tax increases while at the same time the hon. Member for Brightside says that we should increase expenditure on the health service by £6 billion; the hon. Member for Oldham, West criticises us for not spending 0.7 per cent. of national income on overseas aid; and the hon. Member for Blackburn (Mr. Straw) wants to abolish controls on the spending of capital receipts by local authorities. Why does he want to do that? Presumably it is so that local authorities can spend more.
We have not yet seen fully worked through the proposals by the hon. Member for Kingston upon Hull, East (Mr. Prescott) on minimum wages. Is the rate to be £3.40 or £4.05? When they decide we will tell them how much it will cost, but I am certain that if they want to spend that amount on minimum wages they will have to show the British people how it will be paid for in tax. The British people understand very well that no one can promise to spend without demonstrating how the money will be raised.

Mr. Nicholas Brown: Will the Minister give way?

Mr. Dorrell: No, because I have just three minutes left. The hon. Member for Peckham, who is supposed to be responsible for stopping such bids, yesterday spoke at the Dispatch Box against tax increases and in the same debate she called for increased spending on child care. The

Opposition think that they can get around it by tabling amendments that would benefit a company to the tune of only £3 or £10, but that sort of shadow boxing fools nobody.
We all know that, as the hon. Member for Dagenham said, Labour wants to spend more money. We also know that, when it does, it goes to the electorate to raise it in tax. Over the past three months a surreal argument has been going on in Britain. Labour appears to believe that the electorate will suspend disbelief and allow it to peddle these two mutually inconsistent lines without spotting the fact that they are inconsistent. But that will not happen because people know that bills have to be paid and that they are higher under Labour.
They have good reason to know that because the difference between Labour councils and Tory councils is clear to every taxpayer in the land. Labour has sought to obscure and obfuscate the fact that the council tax is £131 higher under Labour than it is under the Conservatives. Labour has not even been able to convince Mr. Peter Kellner on its arguments.
How dare the Opposition talk of excessive tax? It is a dishonest and fraudulent argument that they have not been able to sustain. The people of Britain know from bitter experience that Labour spends more and that the bills of Labour Governments and Labour councils cannot be avoided.
The difference between the parties is neatly encapsulated in a single figure. Under Labour, successful entrepreneurs pay tax at 83 per cent. Under the Tories, the take-home pay of the man on average earnings has increased by £83 a week. It is the same number in two very different contexts. Labour taxes people at 83 per cent.; we have raised people's living standards by £83 a week. Eighty-three is the number; 83 is the litmus test. Under Labour it is tax and under the Conservatives it is living standards.
That is why we should give the Bill a Third Reading.

Question put:—

The House divided: Ayes 305, Noes 260.

Division No. 216]
[10 pm


AYES


Ainsworth, Peter (East Surrey)
Booth, Hartley


Alexander, Richard
Boswell, Tim


Alison, Rt Hon Michael (Selby)
Bottomley, Peter (Eltham)


Allason, Rupert (Torbay)
Bottomley, Rt Hon Virginia


Amess, David
Bowden, Andrew


Ancram, Michael
Bowis, John


Arbuthnot, James
Boyson, Rt Hon Sir Rhodes


Arnold, Jacques (Gravesham)
Brandreth, Gyles


Arnold, Sir Thomas (Hazel Grv)
Brazier, Julian


Ashby, David
Bright, Graham


Atkins, Robert
Brooke, Rt Hon Peter


Atkinson, David (Bour'mouth E)
Brown, M. (Brigg & Cl'thorpes)


Atkinson, Peter (Hexham)
Browning, Mrs. Angela


Baker, Rt Hon K. (Mole Valley)
Bruce, Ian (S Dorset)


Baker, Nicholas (Dorset North)
Budgen, Nicholas


Baldry, Tony
Burns, Simon


Banks, Matthew (Southport)
Butler, Peter


Banks, Robert (Harrogate)
Carlisle, John (Luton North)


Bates, Michael
Carlisle, Kenneth (Lincoln)


Batiste, Spencer
Carrington, Matthew


Beggs, Roy
Carttiss, Michael


Bellingham, Henry
Cash, William


Bendall, Vivian
Chapman, Sydney


Beresford, Sir Paul
Churchill, Mr


Biffen, Rt Hon John
Clappison, James


Blackburn, Dr John G.
Clark, Dr Michael (Rochford)


Body, Sir Richard
Clarke, Rt Hon Kenneth (Ruclif)


Bonsor, Sir Nicholas
Clifton-Brown, Geoffrey






Colvin, Michael
Higgins, Rt Hon Sir Terence L.


Congdon, David
Hill, James (Southampton Test)


Conway, Derek
Hogg, Rt Hon Douglas (G'tham)


Coombs, Anthony (Wyre For'st)
Horam, John


Coombs, Simon (Swindon)
Hordem, Rt Hon Sir Peter


Cope, Rt Hon Sir John
Howard, Rt Hon Michael


Cormack, Patrick
 Howarth, Alan (Strat'rd-on-A)


Couchman, James
Howell, Sir Ralph (N Norfolk)


Cran, James
Hughes Robert G. (Harrow W)


Currie, Mrs Edwina (S D'by'ire)
Hunt, Rt Hon David (Wirral W)


Curry, David (Skipton & Ripon)
Hunt, Sir John (Ravensbourne)


Davies, Quentin (Stamford)
Hunter, Andrew


Davis, David (Boothferry)
Hurd, Rt Hon Douglas


Day, Stephen
Jack, Michael


Deva, Nirj Joseph
Jackson, Robert (Wantage)


Devlin, Tim
Jenkin, Bernard


Dickens, Geoffrey
Jessel, Toby


Dicks, Terry
Johnson, Smith, Sir Geoffrey


Dorrell, Stephen
Jones, Gwilym (Cardiff N)


Douglas-Hamilton, Lord James
Jones, Robert B. (W Hertfdshr)


Dover, Den
Kellett-Bowman, Dame Elaine


Duncan, Alan
Key, Robert


Duncan-Smith, Iain
Kilfedder, Sir James


Dunn, Bob
King, Rt Hon Tom


Durant, Sir Anthony
Kirkhope, Timothy


Dykes, Hugh
Knapman, Roger


Elletson, Harold
Knight, Mrs Angela (Erewash)


Emery, Rt Hon Sir Peter
Knight, Greg (Derby N)


Evans, David (Welwyn Hatfield)
Knight, Dame Jill (Bir'm E'st'n)


Evans, Jonathan (Brecon)
Kynoch, George (Kincardine)


Evans, Nigel (Ribble Valley)
Lait, Mrs Jacqui


Evans, Roger (Monmouth)
Lamont, Rt Hon Norman


Evennett, David
Lang, Rt Hon Ian


Faber, David
Lawrence, Sir Ivan


Fabricant, Michael
Legg, Barry


Fairbairn, Sir Nicholas
Leigh, Edward


Fenner, Dame Peggy
Lennox-Boyd, Mark


Field, Barry (Isle of Wight)
Lester, Jim (Broxtowe)


Fishburn, Dudley
Lidington, David


Forman, Nigel
Lightbown, David


Forsyth, Michael (Stirling)
Lilley, Rt Hon Peter


Forth, Eric
Lord, Michael


Fowler, Rt Hon Sir Norman
Luff, Peter


Fox, Dr Liam (Woodspring)
Lyell, Rt Hon Sir Nicholas


Fox, Sir Marcus (Shipley)
MacGregor, Rt Hon John


Freeman, Rt Hon Roger
Maclean, David


French, Douglas
McLoughlin, Patrick


Fry, Sir Peter
McNair-Wilson, Sir Patrick


Gale, Roger
Madel, Sir David


Gallie, Phil
Maitland, Lady Olga


Gardiner, Sir George
Malone, Gerald


Garel-Jones, Rt Hon Tristan
Mans, Keith


Garnier, Edward
Marland, Paul


Gill, Christopher
Marlow, Tony


Gillan, Cheryl
Marshall, John (Hendon S)


Goodson-Wickes, Dr Charles
Marshall, Sir Michael (Arundel)


Gorman, Mrs Teresa
Martin, David (Portsmouth S)


Gorst, John
Mates, Michael


Grant, Sir A. (Cambs SW)
Mawhinney, Rt Hon Dr Brian


Greenway, Harry (Ealing N)
Mellor, Rt Hon David


Greenway, John (Ryedale)
Merchant, Piers


Griffiths, Peter (Portsmouth, N)
Mills, Iain


Grylls, Sir Michael
Mitchell, Sr David (Hants NW)


Gummer, Rt Hon John Selwyn
Moate, Sir Roger


Hague, William
Monro, Sir Hector


Hamilton, Rt Hon Sir Archie
Montgomery, Sir Fergus


Hamilton, Neil (Tatton)
Moss, Malcolm


Hampson, Dr Keith
Needham, Richard


Hanley, Jeremy
Neubert, Sir Michael


Hannam, Sir John
Newton, Rt Hon Tony


Hargreaves, Andrew
Nicholls, Patrick


Haselhurst, Alan
Nicholson, David (Taunton)


Hawkins, Nick
Nicholson, Emma (Devon West)


Hawksley, Warren
Norris, Steve


Hayes, Jerry
Onslow, Rt Hon Sir Cranley


Heald, Oliver
Oppenheim, Phillip


Heath, Rt Hon Sir Edward
Ottaway, Richard


Heathcoat-Amory, David
Page, Richard


Hendry, Charles
Paice, James


Heseltine, Rt Hon Michael
Patnick, Irvine





Patten, Rt Hon John
Sweeney, Walter


Pattie, Rt Hon Sir Geoffrey
Sykes, John


Pawsey, James
Tapsell, Sir Peter


Peacock, Mrs Elizabeth
Taylor, Ian (Esher)


Pickles, Eric
Taylor, John M. (Solihull)


Porter, Barry (Wirral S)
Taylor, Sir Teddy (Southend, E)


Porter, David (Waveney)
Temple-Morris, Peter


Portillo, Rt Hon Michael
Thomason, Roy


Redwood, Rt Hon John
Thompson, Sir Donald (C'er V)


Renton, Rt Hon Tim
Thompson, Patrick (Norwich N)


Richards, Rod
Thornton, Sir Malcolm


Rifkind, Rt Hon. Malcolm
Thurnham, Peter


Robathan, Andrew
Townend, John (Bridlington)


Roberts, Rt Hon Sir Wyn
Townsend, Cyril D. (Bexl'yh'th)


Robertson, Raymond (Ab'd'n S)
Tracey, Richard


Robinson, Mark (Somerton)
Tredinnick, David


Ross, William (E Londonderry)
Trend, Michael


Rowe, Andrew (Mid Kent)
Trotter, Neville


Rumbold, Rt Hon Dame Angela
Twinn, Dr Ian


Ryder, Rt Hon Richard
Vaughan, Sir Gerard


Sackville, Tom
Viggers, Peter


Sainsbury, Rt Hon Tim
Waldegrave, Rt Hon William


Scott, Rt Hon Nicholas
Walden, George


Shaw, David (Dover)
Walker, Bill (N Tayside)


Shaw, Sir Giles (Pudsey)
Waller, Gary


Shephard, Rt Hon Gillian
Ward, John


Shersby, Michael
Wardle, Charles (Bexhill)


Sims, Roger
Waterson, Nigel


Skeet, Sir Trevor
Watts, John


Smith, Sir Dudley (Warwick)
Wells, Bowen


Smith, Tim (Beaconsfield)
Whitney, Ray


Smyth, Rev Martin (Belfast S)
Whittingdale, John


Soames, Nicholas
Wiggin, Sir Jerry


Speed, Sir Keith
Wilkinson, John


Spencer, Sir Derek
Willetts, David


Spicer, Sir James (W Dorset)
Wishire David


Spicer, Michael (S Worcs)
Winterton, Mrs Ann (Congleton)


Spink, Dr Robert
Winterton, Nicholas, (Macc'f'ld)


Spring, Richard
Wolfson, Mark


Sproat, Iain
Wood, Timothy


Squire, Robin (Hornchurch)
Yeo, Tim


Steen, Anthony
Young, Rt Hon Sir George


Stephen, Michael



Stern, Michael
Tellers for the Ayes:


Stewart, Allan
Mr. Andrew MacKay and


Streeter, Gary
Mr. Andrew Mitchell.




NOES


Abbott, Ms Diane
Byers, Stephen


Adams, Mrs Irene
Caborn, Richard


Ainger, Nick
Callaghan, Jim


Ainsworth, Robert (Cov'try NE)
Campbell, Mrs Anne (C'bridge)


Allen, Graham
Campbell, Menzies (Fife NE)


Anderson, Donald (Swansea E)
Campbell, Ronnie (Blyth V)


Anderson, Ms Janet (Ros'dale)
Campbell-Savours, D.N.


Armstrong, Hilary
Cann, Jamie


Ashton, Joe
Carlile, Alexander (Montgomry)


Austin-Walker, John
Chisholm, Malcolm


Banks, Tony (Newham NW)
Clapham, Michael


Barnes, Harry
Clark, Dr David (South Shields)


Battle, John
Clark, Eric (Midlothian)


Bayley, Hugh
Clarke, Tom (Monklands W)


Beckett, Rt Hon Margaret
Clelland, David


Beith, Rt Hon A. J.
Clwyd, Mrs Ann


Bell, Stuart
Coffey, Ann


Benn, Rt Hon Tony
Cohen, Harry


Bennett, Andrew F.
Connarty, Michael


Benton, Joe
Cook, Frank (Stockton N)


Bermingham, Gerald
Cook, Robin (Livingston)


Berry, Roger
Corbett, Robin


Betts, Clive
Corbyn, Jeremy


Blair, Tony
Corston, Ms Jean


Boateng, Paul
Cousins, Jim


Boyes, Roland
Cox, Tom


Bradley, Keith
Cummings, John


Bray, Dr Jeremy
Cunliffe, Lawrence


Brown, Gordon (Dunfermline E)
Cunningham, Jim (Covy SE)


Brown, N. (N'c'tle upon Tyne E)
Cunningham, Rt Hon Dr John


Bruce, Malcolm (Gordon)
Dafis, Cynog


Burden, Richard
Dalyell, Tam






Darling, Alistair
Home Robertson, John


Davidson, Ian
Hood, Jimmy


Davies, Bryan (Oldham C'tral)
Hoon, Geoffrey


Davies, Rt Hon Denzil (Llanelli)
Howarth, George (Knowsley N)


Davies, Ron (Caerphilly)
Howells, Dr. Kim (Pontypridd)


Davis, Terry (B'ham, H'dge H'l)
Hoyle, Doug


Dewar, Donald
Hughes, Kevin (Doncaster N)


Dixon, Don
Hughes, Robert (Aberdeen N)


Dobson, Frank
Hughes, Roy (Newport E)


Donohoe, Brian H.
Hughes, Simon (Southwark)


Dowd, Jim
Hutton, John


Dunwoody, Mrs Gwyneth
Ingram, Adam


Eagle, Ms Angela
Jackson, Glenda (H'stead)


Eastham, Ken
Jackson, Helen (Shef'ld, H)


Enright, Derek
Jamieson, David


Etherington, Bill
Janner, Greville


Evans, John (St Helens N)
Jones, Barry (Alyn and D'side)


Faulds, Andrew
Jones, Jon Owen (Cardiff C)


Field, Frank (Birkenhead)
Jones, Lynne (B'ham S O)


Fisher, Mark
Jones, Martyn (Clwyd, SW)


Flynn, Paul
Kaufman, Rt Hon Gerald


Foster, Rt Hon Derek
Keen, Alan


Foulkes, George
Kennedy, Charles, (Ross, C&S)


Fraser, John
Kennedy, Jane (Lpool Brdgn)


Fyfe, Maria
Khabra, Piara S.


Galloway, George
Kilfoyle, Peter


Garrett, John
Kinnock, Rt Hon Neil (Islwyn)


George, Bruce
Kirkwood, Archy


Gerrard, Neil
Lestor, Joan (Eccles)


Gilbert, Rt Hon Dr John
Lewis, Terry


Godman, Dr Norman A.
Litherland, Robert


Godsiff, Roger
Livingstone, Ken


Golding, Mrs Llin
Lloyd, Tony (Stretford)


Gordon, Mildred
Llwyd, Elfyn


Graham, Thomas
Loyden, Eddie


Grant, Bernie (Tottenham)
Lynne, Ms Liz


Griffiths, Nigel (Edinburgh S)
McAllion, John


Griffiths, Win (Bridgend)
McAvoy, Thomas


Grocott, Bruce
McCartney, Ian


Gunnell, John
Macdonald, Calum


Hain, Peter
McFall, John


Hall, Mike
McKelvey, William


Hanson, David
Mackinlay, Andrew


Hardy, Peter
McLeish, Henry


Harman, Ms Harriet
McMaster, Gordon


Hattersley, Rt Hon Roy
McNamara, Kevin


Henderson, Doug
Madden, Max


Heppell, John
Maddock, Mrs Diana


Hill, Keith (Streatham)
Mahon, Alice


Hinchliffe, David
Mandelson, Peter


Hoey, Kate
Marek, Dr John


Hogg, Norman (Cumbernauld)
Marshall, Jim (Leicester, S)





Martin, Michael J. (Springburn)
Rooker, Jeff


Martlew, Eric
Ross, Ernie (Dundee W)


Maxton, John
Rowlands, Ted


Meacher, Michael
Ruddock, Joan


Michael, Alun
Sedgemore, Brian


Michie, Bill (Sheffield Heeley)
Sheerman, Barry


Michie, Mrs Ray (Argyll Bute)
Sheldon, Rt Hon Robert


Milburn, Alan
Short, Clare


Miller, Andrew
Simpson, Alan


Mitchell, Austin (Gt Grimsby)
Skinner, Dennis


Moonie, Dr Lewis
Smith, Andrew (Oxford E)


Morgan, Rhodri
Smith, C. (Isl'ton S & F'sbury)


Morley, Elliot
Smith, Rt Hon John (M'kl'ds E)


Morris, Rt Hon A. (Wy'nshawe)
Smith, Llew (Blaenau Gwent)


Morris, Estelle (B'ham Yardley)
Snape, peter


Morris, Rt Hon J. (Aberavon)
Soley, Clive


Mowlam, Marjorie
Spearing, Nigel


Mudie, George
Spellar, John


Mullin, Chris
Squire, Rachel (Dunfermline W)


Murphy, Paul
Steel, Rt Hon sir David


O'Brien, Michael (N W'kshire)
Steinberg, Gerry


O'Brien, William (Normanton)
Stevenson, George


Olner, William
Stott, Roger


O'Neill, Martin
Strang, Dr. Gavin


Orme, Rt Hon Stanley
Straw, Jack


Parry, Robert
Taylor, Mrs Ann (Dewsbury)


Patchett, Terry
Thompson, Jack (Wansbeck)


Pendry, Tom
Turner, Dennis


Pickthall, Colin
Vaz, Keith


Pike, Peter L.
Walker, Rt Hon Sir Harold


Pope, Greg
Wallace, James


Powell, Ray (Ogmore)
Walley, Joan


Prentice, Ms Bridget (Lew'm E)
Wardell, Gareth (Gower)


Prentice, Gordon (Pendle)
Watson, Mike


Prescott, John
Welsh, Andrew


Primarolo, Dawn
Wicks, Malcolm


Purchase, Ken
Williams, Rt Hon Alan (Sw'n W)


Quin, Ms Joyce
Williams, Alan W (Carmarthen)


Radice, Giles
Wilson, Brian


Randall, Stuart
Winnick, David


Raynsford, Nick
Wise, Audrey


Redmond, Martin
Worthington, Tony


Reid, Dr John
Wright, Dr Tony


Rendel, David
Young, David (Bolton SE)


Robertson, George (Hamilton)



Robinson, Geoffrey (Co'try NW)
Tellers for the Noes:


Roche, Mrs. Barbara
Mr. Alan Meale and


Rogers, Allan
Mr. Eric Illsley.

Question accordingly agreed to.

Bill read the Third time, and passed.

Maternity Pay

The Parliamentary Under-Secretary of State for Social Security (Mr. William Hague): I beg to move,
That the draft Maternity Allowance and Statutory Maternity Pay Regulations 1994, which were laid before this House on 24th March, be approved.
The improved maternity payments introduced by these regulations—[Interruption.]

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order. Will hon. Members leaving the Chamber do so quietly, please?

Mr. Hague: The improved maternity payments introduced by these regulations will benefit about 285,000 women a year and 90,000 women a year will be entitled to the higher rate of statutory maternity pay for the first time. Women will have greater freedom about when to start their maternity leave. At the same time, the scheme has been simplified to make it easier for employers to administer.
The regulations before the House amend the statutory maternity pay and maternity allowance schemes and comply with the maternity pay provisions of the European Community directive on the protection of pregnant women at work, which was adopted in October 1992, following negotiation between member states.
The Trade Union Reform and Employment Rights Act 1993 implements the directive's employment protection requirements, including the right to 14 weeks statutory maternity leave.
The changes to the maternity schemes will be as follows. The higher rate of statutory maternity pay—90 per cent. of pay—will be payable for the first six weeks to all women who qualify. The lower rate of statutory maternity pay and maternity allowance for employees will be increased to £52.50 per week to equal the higher rate of statutory sick pay. There will be one employment test of 26 weeks for statutory maternity pay, with the two and five-year employment tests for higher rate SMP abolished. The test period for maternity allowance will be increased from 52 weeks to 66 weeks, giving more women the chance to qualify.
Women will now have the freedom to choose when their maternity leave and pay should start, the only exception being where a woman suffers from a pregnancy-related illness in the six weeks before her baby is expected.
The amount of statutory maternity pay reimbursed to employers will be reduced to 92 per cent. but full reimbursement will be retained for small businesses.
The new provisions will be introduced at the same time as the new maternity leave and dismissal provisions and will apply to all women expecting a baby on or after 16 October.

Mr. Alex Carlile: Does the hon. Gentleman agree that one of the results of the changes will be to leave self-employed women at an even greater disadvantage than before? Do the Government have any proposals to assist self-employed women who become pregnant and would like to take maternity leave?

Mr. Hague: The hon. and learned Gentleman is mistaken if he thinks that the position of self-employed women is changed in any respect by the regulations. They are not placed at any disadvantage.
The regulations do not concern self-employed women. Self-employed people continue to get a very good deal from the national insurance system. A self-employed woman on earnings equivalent to average pay will be paying about one third of the contributions paid in respect of an employed women in the same position, so that has to be borne in mind.
To move on to the specific regulations, regulation I allows for the new maternity benefits to apply to women expecting a baby on or after 16 October. The first payments for those women under the new rules will be made from the end of July, as women can take maternity leave up to 11 weeks before their baby is expected. It also allows for the SMP reimbursement rate to be reduced to 92 per cent. from 4 September.

Mr. John Wilkinson: My hon. Friend is speaking very quickly and when Ministers speak quickly something quite important could pass the notice of the House. Is it not a fact that, as required by European Community directive 92/85, the regulation will mean that employers' reimbursement rates for administering and paying state maternity benefits will be reduced from 104.5 per cent. to 92 per cent? Is this not contrary to Her Majesty's Government's declared intention of reducing the burdens upon employers? Is it not an extra tax upon those who provide employment and is it not another tax imposed at the behest of the European Community?

Mr. Hague: My hon. Friend is correct in pointing out that the reimbursement rate is reduced from 104 per cent. to 92 per cent., although it is important to understand that small employers—about two thirds of all employers—do not have any reduction in their reimbursement rate, so they are in no way penalised.
The regulation does call for an additional contribution from employers, and the Government think that it is right that they should make some contribution to these improved levels of maternity pay. After all, in much of the rest of the European Community employers have to fund about 50 per cent. of the maternity pay entitlement. So employers can at least reflect on the fact that in this country 92 per cent. is provided by the state, with 104 per cent. provided in the case of small employers. Regulation 2 deals with the rate of maternity allowance and entitlement conditions.
Regulation 3 starts the maternity pay period no later than the week after that in which the baby is born. At present, it starts no later than the sixth week before that in which the baby is expected. In addition, a woman working after the sixth week loses one week's maternity pay for each week or part week worked. The regulation will allow women to start their maternity leave and pay at a time when they feel it is best for them without losing benefit. The only exception will be where a woman ceases work after the sixth week before the baby is due because she is sick for reasons relating to her pregnancy. Her maternity leave will start at that point.
Another improvement allows women who are claiming statutory sick pay for reasons not related to their pregnancy at the sixth week before the expected birth to continue


claiming statutory sick pay until the baby is born. At present, SSP cannot be paid beyond the sixth week regardless of the cause of illness.
Regulation 4 deals with the rate of statutory maternity pay. It ensures that all recipients receive the higher rate for the first six weeks. It increases the lower rate to £52.50 —an increase of £3.70—for the remaining 12 weeks. The regulation also abolishes the two-year service test for full-time employees and the five-year service test for part-time workers qualifying for the higher rate, leaving one simple employment test of 26 weeks.
Regulation 5 covers the new reimbursement arrangements referred to by my hon. Friend the Member for Ruislip-Northwood. The SMP reimbursement rate will be reduced from 104 per cent. to 92 per cent. to cover the £55 million cost of the improvements. Small employers will retain the 104 per cent. reimbursement rate and so will not have to pay a penny more. They will be defined as those whose total national insurance contribution payments in the previous tax year were £20,000 or less—the same definition that applies in the case of statutory sick pay. Regulation 6 then makes two minor consequential changes.
Some attention has been given to the contribution to be made by employers. The Government believe that it is right that employers should meet a small part of the cost of maternity pay for their employees during a period of leave from work. Employers in the United Kingdom should be compared with their counterparts in most other European Community states who contribute at least 50 per cent. of the cost of maternity pay. Furthermore, employers' national insurance contributions have been reduced by £830 million. That is £125 million more than the combined cost of this change and the change in statutory sick pay. Overall, employers will be better off as a result of the changes.
The changes are good news for 285,000 women. We have chosen a simpler option for implementing the changes so that there will be administrative benefits for business. We believe that it is reasonable to ask employers to meet the extra cost, given that the state continues to pay the lion's share—92 per cent—of maternity pay. We have not cut the level of state funding at all and small businesses will not pay a penny more. I commend the regulations to the House.

Mr. Keith Bradley: The Labour party supports the improvements in the provision of maternity pay, maternity allowance and maternity leave but it is absolutely clear to us that the changes have been forced on the Government by an EC directive requiring that our maternity benefits be brought into line with those of other European countries.
Britain has been forced to improve its maternity benefits as part of the European social chapter. I agree entirely with my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) who, when the regulations were first published, commented in the press that the Government had been "dragged kicking and screaming" by Europe into introducing the enhanced benefits. Ironically, the opt-out from the chapter secured by the Government does not apply because the improvements were voted through

before the Maastricht treaty was approved. If they had not been, the Government would have tried not to implement the EC directive and would not have supported the improvements. We must be clear about the Government's real position.
We welcome the improvements that the Minister has outlined briefly but it is worth repeating some of the crucial changes that will improve the position of women. The changes that we welcome include a reduction in the qualifying period for statutory maternity pay. In future, as the Minister said, women who have been employed in the same job—I stress that point—for 26 weeks will be eligible whereas, previously, they had to wait for two years in the case of full-time workers and five years in the case of part-time workers. Those changes will help about a fifth of pregnant women workers—a total of about 285,000—who will be able to claim the higher rate of statutory maternity pay.
We also welcome the fact that the sums have been increased, with statutory maternity pay comprising 90 per cent. of earnings for the first six weeks and a weekly £52.50, increased by £3.70 to the level of statutory sick pay, for the remaining 12 weeks. That was part of the directive which harmonised the rate of statutory sick pay with the rate of statutory maternity pay. We welcome the changes to the maternity allowance, which is paid to those women still not qualifying for the full benefit but who earn enough—more than £57 a week-to enable them to pay national insurance. Again, that has been increased under the proposals.
We also welcome the change from 52 to 66 weeks as the period relevant for the 26-week contribution record which is needed to claim the maternity allowance and the fact that women will be eligible for statutory sick pay if they are on sick leave for reasons other than pregnancy within the six weeks of that due date. Those are major improvements, but I stress that they are the consequence of the Government being forced to implement the EC directive, not of a general desire to improve conditions for pregnant women.
It is important that we continue to highlight the considerable and continuing problems with maternity provision. First, although the changes have been welcomed by many groups representing working women—for example, the Maternity Alliance and the Trades Union Congress—they stress that the changes do not go far enough. The Equal Opportunities Commission states that the United Kingdom still has the worst record on maternity pay in Europe, equivalent to only eight weeks' full pay. By comparison, women in Denmark receive the equivalent of 22 weeks' full pay and in Germany the equivalent of 14 weeks' pay. Therefore, even after those changes, the United Kingdom will still have a poor record in comparison with our European partners.
Secondly, earnings-related statutory maternity pay—the 90 per cent. of earnings—is available only for the first six weeks of leave, after which a woman must rely on the lower rate of statutory maternity pay, which is currently £52.50 a week, for a further 12 weeks. The organisations recognise that such a rate is not high enough to cover the true costs of pregnancy, birth and young children. We support that view.
Thirdly, the lower rate of statutory sick pay, to which the directive raises the new rate of statutory maternity pay, has not been uprated for the past four years, so its real value


is nearly £15 less than it should be. If it had been uprated in line with prices over the past four years it would be £67.03 by now.
I must therefore ask the Minister whether statutory maternity pay will be uprated annually, or whether it will continue in line with statutory sick pay, which the Government have not uprated for four years. Or do the Government intend to uprate both statutory sick pay and statutory maternity pay annually, to ensure that they keep their real value?
Even now, not all women are guaranteed a minimum period of paid maternity leave. That flies in the face of the spirit of the directive, the purpose of which was to ensure that all women workers were guaranteed a minimum period of paid maternity leave. It is considered that to protect the safety and health of employed pregnant women and new mothers it is essential that they be statutorily entitled to such leave. We support that view.
One of the crucial problems is that even under the new arrangements the biggest group of losers will be those 20 per cent. of pregnant working women—one in five of them—who earn less than £57 a week, which is the lower earnings limit for national insurance contributions. Those women are excluded from the statutory maternity pay scheme. There seems no justification for such a limit, because statutory maternity pay is not a national insurance benefit. There is no direct relationship between national insurance contributions and statutory maternity pay, but still that qualifying level is used to distinguish between women who do and women who do not receive the pay.
Numerous examples have been supplied to us by many organisations. I pay tribute to the National Association of Citizens Advice Bureaux, which has supplied me with many examples of women who have suffered great hardship because of their lower earnings and consequent lack of entitlement to statutory maternity pay. Under the present rules, women are excluded from statutory maternity pay if, in the eight weeks immediately before the qualifying week, their earnings fall below the lower limit for national insurance contributions.
Two groups of women are affected by that rule. The first consists of women who are simply low-paid. The second consists of women whose earnings during that eight-week period may change and may be exceptionally low. Employers may be aware of the qualifying period and could—I stress the word "could"—manipulate wage rates during that period in some way, so as to deny women the opportunity to qualify.
We believe that the eight-week qualifying test should be replaced by a more representative sample of women's earnings. If over a longer period a woman has qualified, by earning the rates of pay that entitle her to statutory maternity pay because of her national insurance contributions, she should be eligible. She should not be denied.
The next major problem is the length of service requirement. By the 15th week before the expected week of childbirth, a woman must have been working for her employer continuously for 26 weeks. In the United Kingdom, there is no service requirement for statutory sick pay entitlement. Article 11(4) of the directive allows member states to tie entitlement to maternity payments to fulfilment of the conditions that apply to eligibility for sickness benefit.
I again request the Government to consider whether the service requirement for statutory maternity pay should be

abolished so that women receive an income as of right during the relevant period. If the service requirement on statutory sick pay is harmonised, there should be full harmonisation. Decisions should not be made within that about who is eligible and who is not.
The next major problem is the qualifying period. As I have already stated, reducing the test for the higher rate of statutory maternity pay from two years of employment to 26 weeks will obviously enable more women to qualify and that move is, therefore, welcome. However, one group of women who have lost out in the past have been those who have been in continuous employment during the qualifying period, but who have not worked for the same employer throughout.
The Government claim to be keen to encourage mobility and flexibility in the work force. A woman employee who moves jobs should not be penalised if she becomes pregnant. Although paid through the employer, statutory maternity pay is still a state benefit and thus the amount payable should not be linked to a service agreement with one particular employer.
The next major problem is that, although women are entitled to 18 weeks' maternity pay, they are entitled to only 14 weeks' maternity leave. There is a major discrepancy in the new scheme between the right to pay and the right to leave. I ask the Minister what the point is of a right to 18 weeks' maternity pay if women have to return to work after 14 weeks. Can the Government estimate what their savings are from not harmonising at 18 weeks and from reducing by four weeks people's entitlement to leave?
One of the major issues, which was highlighted when the regulations were published and which continues to be a bone of contention, is the implication of reducing the employers' reimbursement for the cost of the new scheme. As we have heard from the Minister, the additional cost of the new scheme will be about £55 million a year. To pay for that, from 4 September, large employers will receive only 92 per cent. of their statutory maternity pay bill. That replaces the current rate of reimbursement of 104.5 per cent.
Smaller employers whose annual national insurance bill is less than £20,000 a year will continue to be fully reimbursed. As you know, Madam Deputy Speaker, from our previous debates on statutory sick pay, the Labour party is now the champion of small businesses and our policies are in place to ensure that that continues. Clearly, we welcome the fact that the Government now understand—

Mrs. Edwina Currie: Is the hon. Gentleman aware of serious concerns being expressed by employers of all sizes—those concerns have certainly been expressed to me—that improving the regulations, albeit in the interests of the women concerned and their babies, puts the future employment of pregnant women at risk?

Mr. Bradley: Yes. I welcome that intervention. I was coming to that point. I support in a general sense the sentiments that I think the hon. Lady is expressing.
It is clear that the Government have recognised that the fact that the Labour party is the friend of small businesses is a problem for them and they have, therefore, exempted small businesses from the proposals. However, there is still the issue of the transfer of costs on to business because of the provision. It is likely that the proposal to make


employers pay part of the cost of statutory maternity pay will cause some to seek methods of avoidance. Concern has already been expressed by organisations; I am sure that the hon. Member for Derbyshire, South (Mrs. Currie) has received the briefing from the Institute of Directors that especially expressed concern on the matter.
When the maternity pay package was published, it provoked an array of negative headlines in the press, which I am sure that the hon. Member for Derbyshire, South read. There were headlines such as "Burdens on employers", "Employers dismayed by improvements in maternity benefits" and "Storm as more qualify for maternity cash".
In its report on the operation of the statutory sick pay and statutory maternity pay schemes in January 1993, the National Audit Office said that inspectors from the Contributions Agency had found that 29 per cent. of the statutory maternity pay cases that they examined contained monetary errors in the calculation. Also, employees were not always informed by their employers of their rights under that provision.
Obviously, the cost to employers of the new maternity pay is relatively low. However, while most employers would recognise that the amount that they are being asked to pay is minimal, what is at stake—I hope that the hon. Member for Derbyshire, South was making this point—is the fundamental principle of the gradual shift of social costs from Government on to employers.
The CBI, among other employers' organisations, is concerned that it will not be long before the cost of statutory maternity pay will be fully borne by employers, as is now the case with SSP. The CBI is worried that, although it may be considered only a small burden at the moment, with a reduction from 104 per cent. to 92 per cent., it is the start of a process, as we saw with SSP, to transfer all the burden on to business. At a time of a faltering economic recovery, the CBI considers any additional burdens to be inappropriate. There is a fundamental suspicion about whether it is a process that the Government will continue and that, perhaps, the next item will be family credit.
We would argue that employers will force down wages because they know that there is a subsidy through family credit which props up those bad employers who want to pay low wages. The Government may decide that they want to shift that burden on to employers and complete the circle.
As we have heard—it is probably relevant to raise the matter at this stage—under SSP, the Government are to undertake a study of the implications of the cost of introducing SSP, especially on small employers, to see whether the burden on small employers for the first four weeks is inappropriate. I would welcome the Minister's comments on how that study is going. I would also welcome his comments on the wider point of whether it is the Government's general intention to shift the burden of all social provision on to employers so that the Government may reduce public expenditure and so that, eventually, employers of all sizes will pick up the tab for improvements in provision for their employees.

Mrs. Teresa Gorman: In view of the hon. Gentleman's newly expressed interest in small businesses, would he address a problem that small businesses often bring to my attention—that of having to keep the job open

for 14 and possibly, as the hon. Gentleman recommends, 18 weeks, when the woman concerned may decide—frequently decides—not to return to work? That is a real problem for small businesses. Would he tell us the Labour party's policy on that?

Mr. Bradley: I am pleased that the hon. Lady takes such great interest in my political career. I was not aware that she monitored—

Mr. Wilkinson: Get on with it and just answer the question.

Mr. Bradley: Labour Members are taking the debate seriously and I shall answer the question in the way that I feel most appropriate. Clearly, it is not a new problem for small businesses, as the hon. Lady would know if she had any knowledge of small businesses in the north-west, in which I and my hon. Friends have taken a great interest and which we have supported over many years. I shall come on to the point about the relationship between small businesses and employment practices.
We believe that the period up to October 1994 should have been used to strengthen enforcement of the statutory maternity scheme through the Contributions Agency and the Benefits Agency and to emphasise to employers the rights given through the Trade Union Reform and Employment Rights Act 1993 to workers who are dismissed due to pregnancy. That is a much more important point, because the percentage of women who have sought re-instatement in the past has been extremely small.
The right to appeal against dismissal does nothing to counteract the effect that the proposals will have on employers' recruitment policies. There is a danger that some employers will deliberately decide not to employ women who are likely to have children. That is a much more crucial point than the one that the hon. Member for Billericay (Mrs. Gorman) made about women who decide not to return to work. It is much more important that we ensure that we protect women who want to go into the workplace. Given the changes in the burden of costs on businesses, there is a danger that businesses in their employment and recruitment policies will deny women the right to enter the workplace. We are most concerned that that may be the implication of the Government's plans.
The Government have said that they are keen—I hope that the hon. Member for Billericay supports this—to encourage women to realise their potential in the workplace through the Government's initiatives such as Opportunity 2000. That means that employers' attitudes can be crucial in determining whether women return to work having had their baby instead of being dependent on benefits.
The package of recruitment policies, the policies that companies adopt towards women in respect of their training, the flexibility of companies and the opportunity for women to move in and out of the workplace are much more crucial—

Mr. Peter Thurnham: I am grateful to the hon. Gentleman for giving way. He said earlier that employers could use the family credit scheme to force wages down. He spoke of his great knowledge of the north-west employment scene. Can he give one example of an employer who has forced down wages in those circumstances?

Mr. Bradley: I was making a general point that it is clear that the Government are applauding themselves because the cost of family credit is rising. We must link the level of wages—only working people can receive family credit—with the abolition of wages councils. Throughout the country there are examples of wage rates down to £2 an hour. The result is that employees are claiming family credit to prop up their wages. If the hon. Gentleman does not recognise that, he knows little about the employment market in the north-west and throughout the country.
It is clear that the Government's proposals are an improvement on the previous position. We have made that clear from the start.

Mr. Bowen Wells: Really?

Mr. Bradley: The hon. Gentleman would have heard me say that at the beginning of my remarks.
We are concerned, however, about the anomalies in the system and the fact that low-paid women do not gain any benefit from the proposals. The benefits that we are introducing still mean that we are at the bottom of the pile of European countries. We have flagged up our concern about the shift of the costs and burdens of social provision on to employees. We want to ensure that the provisions are only the starting point in the improvement of social provision, and especially maternity provision. We suspect that the Government have introduced them in spite of their opposition to the social chapter and fear that they will go no further in trying to make provisions that are at least as good as those of our European allies.

Mr. John Wilkinson: I shall be brief. I would not pretend to be a social security buff or anything like it, but at the risk of mixing metaphors I can smell a rat when I see one.
On reading the regulations, the first thing that struck me was that it would be highly unlikely that the Government would introduce them were it not for the fact that they were bound to do so by European Community directive No. 9285. I wonder whether it is appropriate that we should be legislating in this area at the behest of the Community rather than in our own national interests according to our own lights and judgment and in view of British economic circumstances. That is the first and cardinal point that I shall make.
My second point—to reinforce the one I made earlier in an intervention on my hon. Friend the Minister—relates to the reduction of the reimbursement rate for all but the smallest employers. Later, my hon. Friend may be able to clarify the number of employers who will have to make additional contributions for the administration and payment of state maternity pay benefits as a consequence of the regulations. I do not know exactly what an annual national insurance bill of £20,000 constitutes, but all but the smallest companies will have to make additional contributions as a result of the regulations.
The explanatory note on the back of the statutory instrument says:
An assessment of the compliance costs for employers … has been made and a copy has been placed in the libraries".
I may not have heard accurately what my hon. Friend the Minister said earlier. If he quantified the amount that employers will have to contribute as a consequence of the regulations, I ask him to remind the House because I missed it. It is an important matter and the information

should be available not only in the Library of the House for researchers and hon. Members but in the record of our debate this evening.
Businesses are struggling to come out of recession. They face too many burdens and cash flow remains a problem. In those circumstances, I do not see how it can help recovery and employment prospects to place additional burdens of this sort on all but the smallest employers.
My hon. Friend the Minister made a comparison with other European countries—implicitly, other Community countries. I do not call them Union countries yet; I call them Community countries, and I shall continue to do so. The point is that we live in a global economy. Our competitors are not principally our Community partners; they are the thriving, dynamic economies of Asia and South America. With the European Community so stuck in recession, it is necessary for Her Majesty's Government to comprehend that and to translate that comprehension into their legislative actions by pursuing a social programme which is not Eurocentric but related to the reality of the economic world in which we must live and compete.
It may be desirable—I am sure that it is, and I fully applaud the intention of those who are promoting the regulations at the behest of the Community—to do more for mothers who have to take leave to bear children. Nevertheless, the countries with which we must compete to a large extent do not have social costs of this sort. The more policy-makers in the United Kingdom are obsessed with such regulations and benefits, the more likely they are to forget the necessity of cutting the social burdens and social costs which are inhibiting growth and dynamism in the British economy, and the creation of new jobs across the nation.
This is an interesting debate. I know that my contribution has been an amateur one.

Mr. David Nicholson: Perhaps my hon. Friend will at least express gratitude that the individuals who may benefit from the regulations are not expecting to receive the grand sum of £300,000.

Mr. Wilkinson: I am always glad to express gratitude and to show magnanimity of spirit.
I conclude my remarks by focusing on a central point. It is more important for the United Kingdom—if our opt-out of the social chapter is to mean anything—to show that we are not necessarily bound to apply directives at the behest of Brussels. We must begin to pursue independent policies which are in the interest of our economy and our people.

Mr. Alex Carlile: I join with the expression of satisfaction that more women will be drawn within the potential of statutory maternity pay. It is right and proper that the European Union should seek to provide as high a level of maternity pay as is consistent with a modern economy.
The speech of the hon. Member for Ruislip-Northwood (Mr. Wilkinson) did not contain his recipe for the extent to which maternity pay should be paid. One suspects that the hon. Gentleman is not in favour of it at all.
Whatever the Government claim, this change is not, to quote one journalist who wrote recently,


as much the gift horse as it sounds—for almost all the women who currently do fulfil the eligibility criteria will be better off sticking to the old system.
That does not sound like a great improvement.
I should like to highlight five points. The first relates to administration costs. It is correct, as I and others have calculated, that the changes to the scheme will mean that employers will incur considerably increased implementation costs in the year 1994–95. Indeed, if it is to be a gift horse for anyone, it will be for those who make the computer software which will have to be put into the administrative systems of the companies running the scheme.
Larger employers will incur extra costs, but those will vary in accordance with the size and distribution of the work force and the nature of the pay system which is used. I have looked for examples of the changes which will take place. It looks as though a large supermarket chain with 100,000 employees—most of whom are women—will have to implement detailed changes. Those will include drafting procedures, training personnel and payroll staff, communication exercises and changes in computer software and will result in the chain having to spend about £300,000 extra.
Companies are bound to ask themselves whether it is worth employing women who are liable to become pregnant if they have to spend all that extra money. The hon. Member for Derbyshire, South (Mrs. Currie) suggested in an intervention that it may well lead to the employment of fewer married women and fewer women of child-bearing age.

Mr. Wells: Quite right.

Mr. Carlile: I hear the hon. Gentleman commending the view that fewer women of child-bearing age should be employed. I do not know whether he meant to intervene in that way.

Mr. Wells: I am grateful for the opportunity to give an explanation. I am not in favour of the effect which the hon. and learned Gentleman outlines. I would advocate the employment of women of child-bearing age as much, and as often, as possible. I was agreeing with him that the measure is likely to do the reverse. It will do serious harm to young women who are seeking to make their careers in business and in other ways, as they may not be employed in preference to young men and others.

Mr. Cartile: I am grateful for the hon. Gentleman's clarification. The answer is in the Government's hands. The Government have chosen to place the extra burden on businesses. That is not done by some of our European Union partners, who manage to deal with the problem in another way.
The second point I want to raise relates to the reasoning for passing on the costs to employers. As is to be expected, companies strongly object to the transfer of the administration of the scheme to employers. They also oppose the Government's suggestion that statutory maternity pay is a form of pay which should be financed by employers. It has to be borne in mind that employers already contribute significantly to the cost of statutory maternity arrangements through the maternity leave requirement.
Few companies, however, feel that they should have any responsibility to finance maternity pay, given that the majority of women who receive it do not return to work for those companies. That is another reason why employment of women of child-bearing age is likely to be reduced as a result of the changes unless the Government recognise their responsibility to pick up the cost of the difference.
CBI research suggests that only 7 per cent. of employers provide occupational maternity benefits, and that there is no analogy between statutory sick pay and statutory maternity pay because, while employers wish to control sickness absence, they have no reason to wish to control maternity absence if the women concerned are not going to go back to work for them anyway.

Mr. Nick Hawkins: Surely measures such as this are introduced on the insistence of the European Union. Would not the hon. and learned Gentleman's party impose far more burdens on business, because it would lie down in front of the Brussels bulldozer and accept everything emanating from Brussels?

Mr. Carlile: I advise the hon. Gentleman to ask his own Secretary of State—or, rather, the then Secretary of State—why she accepted the proposals. I understand that the Government are commending the arrangements to the House, having entered into them voluntarily.
My third point relates directly to the impact on employment opportunities. By increasing the cost of employment, the Government's proposal is bound to reduce such opportunities for younger women. The additional costs, moreover, will not be evenly distributed across business. Some sectors have a high concentration of female workers: obvious examples are hairdressing and supermarkets, which employ a great many women. Those sectors are likely to find that they are not adequately compensated by the overall reduction in employers' national insurance contributions.
Smaller employers may also be disproportionately affected unless they are within the very small protected area of extremely small business that was mentioned earlier. At the very least, the small employer's relief for statutory sick pay and statutory maternity pay should operate on a uniform basis, in line with the system currently being considered for statutory sick pay. I hope that the Minister will explain why that is not currently the Government's view.
My fourth point relates to a broader issue—the question, in its broadest sense, of sexual discrimination against women. I think that a point raised by the Maternity Alliance at least merits an answer from the Government. The alliance encompasses not only trade unions and women's organisations, but a great many entirely objective and apolitical charities—voluntary organisations. It has attacked the Government for complicating what is already a complex system of maternity rights instead of trying to simplify the system. The Prime Minister has talked of cutting bureaucracy, form filling and bureaucratic complexity, but these proposals will do the exact opposite.
The Maternity Alliance says that maternity pay should be on a par with pay received during other forms of occupational leave. May I ask the Minister what real justification or logic exists for saying that statutory maternity pay should be on a different basis from sick or compassionate leave when employees generally receive full pay? Perhaps for economic reasons we cannot yet


move to that situation, but it would be interesting to know whether the Government have any basis for saying that in future we should not aim to move to it.
In its briefings the Maternity Alliance says that by not adopting that approach the Government are guilty of sex discrimination, and it asks the Government to meet the cost of paying the higher statutory minimum, leaving employers to top it up. Perhaps the Minister will respond to that, especially as the Maternity Alliance represents a politically broad swathe of women of child-bearing age.
Fifthly, the changes that have been announced have been in the pipeline for a long time. There has been plenty of time to consider the mechanics of the European Union decision. The changes do not address the problem of the 2.25 million women in the United Kingdom who earn, as was said earlier, less than the lower earnings threshold of £56 a week. They will continue to be denied access to statutory maternity pay.
One of the purposes of the directive is to ensure that all women workers are guaranteed a minimum period of paid maternity leave. Maternity pay is not a national insurance benefit. There is no justification for continuing to exclude these very low-paid women from the maternity pay scheme.
I had intended to make five points but I have a sixth, and it is not "back to Janice": it is a genuine point. It relates to the self-employed, a matter that I raised in an intervention. There are many self-employed women in Britain, and they range from highly successful consultants—for example, I know some extremely successful women QCs—to women on low pay who, perhaps, visit their friends and neighbours to carry out their work as hairdressers, for which they receive small sums of money.
Many women in that spectrum are of child-bearing age. The Minister said that self-employed people have some advantages. I do not deny that, but I always thought that the Government set sufficient store by the initiative of those who chose to take the risk and insecurity of being self-employed to say that the advantages of self-employed status are there to take account of the problems of running a business with uneven cash flow and other difficulties.
Surely it is not right that self-employed women of child-bearing age should be in a totally different position from similar women who are employees. The time has come for the Government to do much more for self-employed women. One action that they could take is to ensure that they are given the same rights in relation to maternity pay.

Mr. Richard Alexander: I feel some unease about the regulations. It was not helped by the speech by the Opposition Front-Bench spokesman, the hon. Member for Manchester, Withington (Mr. Bradley) who, if I summarise him correctly, seemed to be asking for more of the same.
The much-quoted briefing from the Institute of Directors has alerted many of us to some of the implications of the measure. One part of the briefing that caught my eye was the reference to the fact that the measure may be contrary to the European Communities Act 1972. The institute raises the interesting argument that raising new taxes would be illegal and improper under the 1972 Act. When my hon. Friend replies, he may choose to discuss that interesting allegation.

Mr. Andrew Miller: Why does the hon. Gentleman think that the Institute of Directors did not bother to point that out when those issues were discussed last year during the passage of the Trade Union Reform and Employment Rights Act 1992? The Institute of Directors went to a great deal of trouble to brief Members on both sides of the House, as did many other Lobby organisations. It did not mention that point. Does the hon. Gentleman think that it is simply an afterthought or pure invention on the part of the institute?

Mr. Alexander: It is not for me to surmise the reasoning behind the Institute of Directors' thinking, but, as that point has been raised, it deserves an answer. I suggest to my hon. Friend that he may choose to respond to it.
My unease stems from the fact that we, the Conservative party, try to proclaim our support for people who try to run their own businesses, yet too often they say that the ratchet is being turned against them one notch more each time. I am uneasy lest the measure represents another small ratchet. We proclaim our hostility to anything that imposes social costs on industry and we have witnessed—especially those of us who have travelled in Europe—the effect of those burdens on industries in the rest of the European Community. Yet here we are, proposing to reduce reimbursement of statutory maternity pay to 92 per cent.—not a great deal, but it is another burden. It is one more turn of the screw.
The real question that the House must ask—I am not sure that it has been widely debated, canvassed or discussed—is, should the burden of statutory maternity pay fall on the employer or the taxpayer? Statutory maternity leave requirements are already imposed on the employer, and now the latest measure is imposed. If reimbursement is 92 per cent. today, will it be 50 per cent. in a few years' time? Will it be the lot in three or four years' time, gradually introduced under new regulations? I simply pass on to my hon. Friend the Minister my anxiety about the ease with which new burdens seem to be passed on to industry today.
I ask the House and my hon. Friend the Minister what benefit an employer receives by making the payment—or is it, as the institute suggests, another form of tax? It was said tonight that most employees do not return to the same employer when their period of maternity leave has gone by. The difficulty is that employers have no means of knowing how much the measure will cost them at a point in the future. It is a small amount at the moment, but it could be increased and we do not know whether it will be.
There is a special problem for companies with a high concentration of female employees, especially small employers. In some cases, as has been commented, it may militate against their taking on any female potential employees, and that is a worrying aspect of what we are doing.
The whole thing, as my hon. Friend the Minister has made clear, is a result of the EC pregnant workers directive. I say to him and to the House that it is another burden on business. It is another social cost to industry. I am a little surprised that the Government have not resisted the directive more robustly.

Ms Ann Coffey: I welcome the implementation of the European directive with more enthusiasm than the Minister has shown to date. It will help thousands of women and their families who, because they work part time, have no entitlement to maternity leave or benefit.
Women now form 49.1 per cent. of the work force and 28.2 per cent. of all employees are part-time. Traditionally, women have used part-time work to combine their family responsibilities with their need to earn money, and employers have needed their contribution. But women have not been treated fairly. The nation would grind to a halt without the contribution of women's work, paid and unpaid—mostly unpaid—but women have had precious little recognition for that.
The benefits system has discriminated outrageously against women in part-time employment. It has denied them entitlement to unemployment benefit and sick pay, and their pensions have been affected in the long term. The recent Law Lords' ruling said that part-time workers who work more than eight hours should have the same employment rights as full-time workers. The Government are still considering that.
I hope that the implementation of the EC directive will be the beginning of many to come and will improve the position of women in part-time work, who seem to be invisible to the Government. Women do work and have children, and the nation can do without neither contribution. It is about time that women were treated more fairly.
There has been much discussion this evening about the parliamentary brief from the Institute of Directors, and I was concerned about some of the statements that it contained. For example, it said that the proposed changes to maternity benefit would damage both business and working women, and that business would be saddled with the social cost, which was bound to damage employment opportunities for women of child-bearing age. It said that the extra cost involved in employing women of child-bearing age could handicap their employment prospects.
Every time legislation that would improve the position of women is proposed, it is argued that, in the long term, it will discriminate against women. This evening, it has been argued that, because of the additional social cost which the Government have decided to place on employers, this measure would discriminate against women, so perhaps we should not go along with the EC directive. The same arguments were advanced about equal pay. At the time, it was said that it would discriminate against women's employment, but that prospect never came to pass.
The sum total of what the Institute of Directors seems to be saying is that employers will not employ women in case they get pregnant. This country has equal opportunities legislation and it is therefore not legal to discriminate against employees on the ground of sex or against women because employers think that they are a bad employment prospect. It will be interesting to see how effective that legislation is in the future.
My colleagues and I shall advise women to watch for any signs of discrimination from employers. I warn the Institute of Directors to remember that and advise companies of their legal responsibility under existing

legislation. The suggestion that women should not be employed because of the social cost to employers is outrageous.
I do not regard this as solely a women's issue. It concerns families—parents being able to provide for themselves and their children and combine work and responsibilities to their children. The employment pattern is changing: part-time work benefits women, their families, and employers. It is extremely important that the contribution that women have made over the years is recognised and treated fairly. I therefore welcome the regulations and look forward to many more EC directives being debated in the House, as it is obvious that Europe has a more progressive attitude towards social legislation than we can expect from the Conservative Government.

Mrs. Teresa Gorman: I should like to ask my hon. Friend the Minister one simple question. Does he want to get more jobs for people who want to work or does he just seek to obtain better benefits for those who are already in work? That is what the measure comes down to. It is a good example of politics doing harm by trying to do good.
The provision will price women out of jobs. It will not be immediately obvious, and will apply more to women who seek to enter the labour market—often for the first time. They will inevitably be viewed by some employers as a potentially more expensive source of labour than other available sources. That could advantage older women who have passed child-bearing age, so that women as a whole may not be harmed. But women with children or women of child-bearing age who wish to work will inevitably be affected to some extent because the regulations will colour the attitude of potential employers.
We have come out of an era when women were discriminated against if they got married. Not long ago women had to give up their job if they married—the civil service was the worst employer in that respect. Teachers and nurses had to give up their work if they married. We are entering an era where women may be discriminated against even more simply because they are of marriageable age. Their potential to have children will be seen by employers as a possible burden.
Nobody in the House seeks to improve the lot of women more than me. I am on the side of women, and I want to keep as wide a range of jobs open to them as possible. It is important for women to have the opportunity to go to work, obtain the experience of being at work and have the chance to go back to work without creating additional hidden burdens that make them less desirable as employees.

Mrs. Audrey Wise: Will the hon. Lady give way?

Mrs. Gorman: If the hon. Lady will wait one moment I shall give way to her.
I want to say something from the employer's perspective. Women and politicians do not create jobs; employers do. It is important to consider how an employer views all regulations related to employment. People do not understand the notion of "Once bitten, twice shy". If an employer has experienced the difficulties of keeping a job open for a woman who has gone on maternity leave only to find that she does not return, it will influence his


judgment the next time that he faces that prospect. One can take a horse to water, but one cannot make it drink. One can create wonderful employment conditions, but one cannot force an employer to adopt them. He may have to adopt them for existing employees, but his opinions and attitude will be coloured the next time that he considers employing staff. That worries me because, at that stage, women's interests are harmed by such regulations.
My hon. Friend the Minister said that only large employers would be affected. But many large employers—for example, as has been said, in the retail trade—employ women. It is important that those employers remain as open-minded as possible towards younger women. Such employment provides an important source of jobs for many women who want to work part-time or flexible hours, particularly in the retail trade. It is a golden opportunity for women to return to the labour market. We do not want to colour the attitude of employers, but their attitude is already coloured.
Anyone who shops at a supermarket knows jolly well that, in Britain, there is nobody available to pack groceries into bags. Shoppers have to unload the groceries out of their trollies and, while the girl is cashing up, all the goods flood down the other end so that shoppers have to rush backwards and forwards, shoving the shopping into plastic bags before the next lot arrives. In the United States one does not have that problem because there is an extra employee, usually a woman, at the other end of the line packing goods. Why? Because employees are not so overburdened with costs and hidden-cost regulations as to make them less attractive. Sainsbury, Tesco and Safeway are not being stingy, but trying to keep their risks as low as possible.
That is the simple reason why, if one goes to the movies, one is more likely to have to stumble one's way to one's seat in the dark than to have a young woman with a torch showing the way. Women are less attractive as employees. If they were more attractive and did not bring extra burdens with them, perhaps more of them would be employed.

Mr. Simon Burns: May I advise my hon. Friend that she need not go to the United States for those marvellous services? She has only to travel about four miles from her constituency to Chelmsford, where there is certainly one supermarket that provides them. The new Kingshead Meadow cinema has usherettes who show us to our seats with torches.

Mrs. Gorman: I thank my hon. Friend for his intervention and I give way to the hon. Lady.

Mrs. Wise: Does the hon. Lady accept that the directive does not compel the Government to put that burden on employers, but that the Government choose to do so?
Opposition Members do not want discrimination against employers who employ large numbers of women. The burden should be either on all employers or on the state. I remind the hon. Lady and the Government that all employers benefit ultimately from the fact that women continue to get pregnant. If they did not, where would the next generation of workers come from for any employer?

Mrs. Gorman: The hon. Lady's last point is irrefutable and I would not seek to quarrel with her.
I am concerned particularly about small employers. I have been one and I have represented them for many years before coming to the House. Small employers encounter

enormous difficulties in keeping a job open. I know that the regulations do not yet apply to small employers, but only very small employers are exempt. Keeping open the job of a key employee—often a highly skilled and trained woman—for 14 weeks or more, possibly to find that she does not return to work, creates enormous difficulties and great
disincentives.
As many medium-sized firms that face that problem will be included in the changes, I counsel the Minister to consider carefully whether the Government have their priorities right in adding any burden to businesses when the creation and retention of jobs is of paramount importance—a great deal more important than the miserable amount of tax money that the Government will raise in this manner.

Mr. Nirj Joseph Deva: Does my hon. Friend agree that this is yet another example of divisive, high-cost European legislation that we really do not want, but are lumbered with?

Mrs. Gorman: I entirely agree with my hon. Friend. Had he been here a little earlier, he would have heard that point being made very cogently and that is why I have not dealt with it.
I ask my hon. Friend the Minister to answer the point that I have now made twice, that the measure is not a job creation exercise and in the long term, it undermines the basis of the Government's employment policy—to get more jobs for more people.

Mrs. Audrey Wise: I rise to express my concern about those women who will not benefit from the regulations. I welcome the regulations as far as they go and note that they have been imposed on the Government. I regret that that is necessary, but my concern is for those women who earn less than £57 a week and do not benefit at all.
Women on low wages may depend on those wages just as much as any other worker. Those women and their families may be just as dependent on that small extra addition to the family income as those who earn much more. The fact that the wage is low does not mean that it is less important to the family and the loss of that wage can be extremely important. The lower the income, the less one can afford to lose any of it. I regret that the Government have not taken the opportunity to do something about it.
I remind the Minister that when the Select Committee on Health examined maternity services and published a report in March 1992 dealing with maternity pay, it unanimously disapproved of the present arrangements. We pointed out that not only do they disadvantage women on low wages, but they are administered in an extremely rigid manner which leads to great anomalies. The fact that a woman has to qualify over a specified eight-week period makes it extremely unfair in many cases. For example, if a woman is on a bonus or commission her earnings may drop during one or two weeks in the specified eight weeks, but over a longer period—perhaps three months—she would qualify.
As has been pointed out, there can be deliberate manipulation of the earnings pattern. Sheer accidents can occur, such as when a holiday falls and holiday pay accrues. It is quite wrong that this matter, which is so important to women, should be determined in a very arbitrary and anomalous manner. I am particularly


disappointed that the Government have not addressed that point, especially considering that the Select Committee on Health drew their attention to it in a report which was widely welcomed. The Government have exposed the fact that they intend to do only the minimum and not a morsel more, or they would have looked in a much more general way—perhaps even in a slightly generous way—at the needs of women.
I deplore the attitude of hon. Members who think that because the Government choose to discriminate unfairly against employers of large numbers of women it is the women who should suffer. The answer to the needs of employers is entirely in the Government's hands. It seems to me that they are doing both employers of women and women themselves a great disservice in changing the funding arrangements.
I do not believe that employers should have to bear the cost of administering social benefit schemes. It is not fair; it is not part of an employer's job. I object particularly to the measure being used to discriminate against those who employ women. I object to employers thinking that the answer is to employ fewer women, but I object primarily to a Government who make it an issue at all.
As I said, the Government are ensuring that they do the barest minimum—that which they cannot evade or avoid—and not a fraction more. The women of this country — especially the low-paid—will draw their own conclusions from that.

Mr. Bradley: With the leave of the House, I will sum up the debate. However, I will be extremely brief because I think that it is very important that the Minister answers the many points that have been raised by hon. Members on both sides of the House.
The debate has clearly exposed the splits over Europe among Government members. My comments at the beginning of the debate that the Government were dragged, kicking and screaming, into implementing the directive were proved correct by the contributions of Government Back Benchers.
I am grateful to Opposition Members—especially my hon. Friend the Member for Stockport and the hon. Member for Preston—for highlighting the weaknesses that still exist in the provision, particularly in relation to the lowest paid women in the work force who are below the national insurance contribution threshold and self-employed women, as the hon. and learned Member for Montgomery (Mr. Carlile) pointed out.
As my hon. Friend the Member for Preston said, the Government have decided to transfer the costs on to business. The £55 million bill could have been met by the Government to honour social provision and improve the rights of women workers in this country, but they have chosen to transfer the burden on to business. We shall be monitoring that provision—and that relating to statutory sick pay—to ascertain whether it is the thin end of the wedge as regards the transfer of the cost of social provision from the state to business.
As my hon. Friend the Member for Stockport said, it is absolutely right to have equal opportunities legislation and we shall be monitoring the impact of the provisions to ensure that women are not discriminated against, that their

rights are upheld and that they continue to enjoy protection, whether they are in the workplace or at home on maternity leave.
It is essential that we know why the Government have not gone further to ensure proper provision under the regulations and for anomalies in the system to be explained. I shall therefore conclude my remarks in order to allow the Minister the maximum time possible to answer the questions that were asked not only by Opposition Members but by his Back-Bench colleagues.

Mr. Hague: With the leave of the House, I shall indeed try to use the remaining time to answer as many as possible of the questions that have been asked and to do so without being vague.
My hon. Friend the Member for Newark (Mr. Alexander) said that the Institute of Directors had asked whether regulations made under the European Communities Act 1972 can be used for the purpose for which we are using them. The Government's understanding of the legal position is clear: the new reimbursement rate has been set to cover only the additional cost of the directive and, as such, is tax neutral for the taxpayer. Employers are not paying a tax; rather, they are now being asked to meet a small part of the cost of maternity pay for their employees. There is no difficulty of the type feared by the Institute of Directors in bringing forward the regulation under that Act.
My hon. Friend the Member for Ruislip-Northwood (Mr. Wilkinson) said that the Government would not be enacting the measure without the European Community directive. I have to tell him that the directive was negotiated with other member states and was changed substantially in the course of the negotiations. Without those changes, it would have imposed much greater costs on employers or taxpayers. He asked specifically about the number of employers affected. About 750,000 small employers will continue to receive the full reimbursement rate of 104 per cent. They are about two thirds of the total, which leaves about 500,000 who will pay more as a result. That sum involved is about £55 million.
As I said in my opening remarks, that must be seen against the background of a reduction in employers' national insurance contributions which totalled £830 million and which is £125 million greater than the cost of this change and the end of reimbursement of statutory sick pay.

Mr. Miller: rose—

Mr. Hague: I am sorry, but I cannot give way in the limited time available.
My hon. Friend the Member for Billericay (Mrs. Gorman) also asked us to remember the cost for employers and said that women would be priced out of the market. It may be a dangerous thing to say, but I shall have a small wager with my hon. Friend that women will play an increasingly important part in the work force and make an even greater contribution in future, notwithstanding the enactment of this measure.
The hon. and learned Member for Montgomery (Mr. Carlile) also mentioned the cost for employers. To put it in perspective, the amount in question is 0.03 per cent. of the national wage bill, although what he suggested—having maternity pay set at a level equivalent to occupational sick


pay—would cost an additional £500 million. I am not sure how he and his party envisage financing such a commitment—perhaps it is a matter to which he should turn his thoughts. He also asked why the study of statutory sick pay for small employers could not embrace statutory maternity pay. The answer is that small employers are not affected by the measure. They continue to receive the full 104 per cent. reimbursement.
The hon. Member for Manchester, Withington (Mr. Bradley), speaking from the Opposition Front Bench, welcomed the measures. I recognise that and I thank him for it. He also asked about the difference between the 14-week and the 18-week entitlement. It is important to point out that 60 per cent. of women in the United Kingdom qualify for up to 40 weeks' maternity absence—the maximum—which is the longest period available in any member state of the European Community. To establish an 18-week minimum entitlement would add another £50 million to the cost of the measure. Again, the hon. Gentleman and his party need to think about where they would find the additional £50 million that they advocate spending.
The hon. Gentleman and several other hon. Members said that this country was behind the rest of the European Community in maternity provision. It should be borne in mind that the United Kingdom pays statutory maternity pay for longer than most EC countries, and is the only country with a centralised system of income support covering all categories of need. The United Kingdom and Luxembourg are the only countries that wholly finance maternity pay —that will still continue at 92 per cent. in this country. Moreover, 60 per cent. of women qualify for the full 40 weeks of maternity absence, the longest period in any member state.
If hon. Members wish to improve further on those provisions, as many of them have advocated, they must think about how they would finance their suggestions. Some of them have adopted a strange position. Within the past two hours Opposition Members have criticised the burdens put on employers by increasing the cost of maternity pay, yet they have also voted against increasing the Government's revenue. 'They have been most unwilling to say where they would find the money to finance more generous maternity pay, if it did not come from employers.

Mr. Miller: rose—

Mr. Hague: As the hon. Gentleman did not have the chance to speak in the debate, I shall let him intervene to tell us the answer to that question.

Mr. Miller: Earlier this evening, because the Minister was worried about his Back Benchers, he carefully explained to them that because of the increased employers' national insurance contributions the changes were tax neutral. Will he therefore go further and extend those provisions to adoptive mothers, because that would also be tax-neutral? Many of his Back Benchers would agree with him if he did that.

Mr. Hague: The hon. Gentleman has a strange understanding of what "tax-neutral" means. Today we have heard from some Opposition Members proposals for

spending half a billion pounds of extra money. There is nothing tax-neutral about that; it would be extra money that would have to come from the taxpayer or be borrowed. Opposition Members have fought shy, as they always do, of putting forward any specific proposals on how they would finance their ideas. They have been content to pose as people who would improve conditions for some people by improving the rates of maternity pay and maternity allowance, without any idea of how they would go about it, or where they would find the money.
The hon. Member for Withington said several times that the Government had been dragged kicking and screaming into improving maternity pay—a comment originally made by the hon. Member for Glasgow, Garscadden (Mr. Dewar) when the announcement was made. Let me point out to the hon. Member for Withington that statutory maternity pay and maternity allowance are being increased for the whole 18-week payment period. The increase is not restricted to the 14-week period required by the directive.
Under the directive, the higher rate of statutory maternity pay payable to all women with 26 weeks' service could have been restricted. The directive said that any employment test must not exceed 52 weeks. We have gone for a 26-week service qualification for all. Women will also now be free to choose when to start their maternity leave and pay, which is an improvement not required by the directive. Furthermore, small employers will continue to be reimbursed in full—a healthy and helpful arrangement for them which, again, was not required by the directive.
That does not look to me like a list of proposals into which the Government have been dragged kicking and screaming. None of them was required by the directive that the hon. Gentleman said had imposed the changes on the Government.
The regulations will improve maternity pay for 285,000 women and will give the higher rates of maternity pay to 90,000 women each year for the first time. They should be welcomed by the House, and I hope that they will now be approved.

Question put and agreed to.

Resolved,

That the draft Maternity Allowance and Statutory Maternity Pay Regulations 1994, which were laid before this House on 24th March, be approved.

PETITION

Seat Belts

Mr. Roger Evans: I present a petition bearing the names of more than 156,000 people throughout the country who are concerned about the want of seat belts in school buses. This is the BUSK—belt-up school kids—petition, the material part of the prayer whereof reads as follows:
your undersigned Petitioners call upon this Honourable House to legislate to make it compulsory for seat belts (not lapstraps) to be fitted in all school buses and vehicles used to transport children to and from their schools and on school trips and your petitioners as in duty bound will ever pray etc.

To lie upon the Table.

Livingston Development Corporation

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Kirkhope.]

Mr. Robin Cook: I am grateful for this opportunity to initiate a short debate on the winding up of Livingston development corporation. This is probably the most strategic issue to confront my constituency in the 11 years in which I have represented it. It also raises wider questions, as testified by the presence in the debate of some of my colleagues from sister new towns who will seek to catch your eye, Madam Deputy Speaker, after I conclude, and by the support of my hon. Friend the Member for Linlithgow (Mr. Dalyell), who shares with me the local authority that is affected by the wind-up.
The background to tonight's debate is the Minister's decision to cut short the timetable for the wind-up by two years. That has compressed the time available for an orderly wind-up, and has given rise to a number of severe problems. I shall begin by focusing on the problems it causes for the economic development of the new town.
My hon. Friends will remember that, when the process began four years ago, we were assured by Ministers that the solution to maintaining the momentum for economic activity in the new towns was a local development company. Indeed, only three years ago, when the White Paper came out, it described local development companies as the most effective solution to maintain the momentum of economic development in the new towns.
Only last month, Livingston development corporation formally abandoned its plans to try to form a local development company. It has done so because the time scale available is too short, and, because once it has met the target for the sale of assets, it will not have enough left to provide a base for its own local development company.
My first question for the Minister is as follows. Now that we have lost the opportunity to have what he described as the most effective way in which to maintain economic activity, what now? How can he guarantee that there will continue to be the commercial investment—and the planning to provide for that investment—in a new town with a very young population, where we need another 1,000 jobs every year if we are simply to stand still and cope with the growth in the young work force?
The other aspect that arises from the short timetable, which has an immediate bearing on the economic development of the new town, is the future of the staff. They are now demoralised, which gives rise to serious problems for the functioning of the new town. The staff have a short time to remain in post, and no longer have the option of a local development company to which to transfer. As my hon. Friends will know, the enhanced redundancy offer to staff of the new town has been withdrawn, with severe implications for the staff of the other new town corporations which face imminent wind-up.
It is a great irony that, all over eastern Europe, countries and towns are struggling to put together teams of people who have some knowledge of attracting inward investment and managing commercial development. In Scotland, we have five very successful teams in the area, yet we are currently breaking them up. Why is there a shorter timetable?
It is no secret why there is a shorter timetable. I do not

think that the Minister is free to admit why, but he knows perfectly well that we know why there is a shorter timetable, and that we know that he knows why. The reason is the Treasury. The truth of the matter is that, in the past year, the priority consideration in winding up has shifted from how we preserve the economic development of the new town to how we make as much money as possible, as fast as possible, from the sale of the assets of the new town.
I am grateful to the Minister for answering a parliamentary question that I asked a couple of months ago and confirming that the target that he set for the sale of assets by Livingston new town in the next two years was £70 million, from industrial and commercial premises and from land for industrial and commercial use. Livingston development corporation has only £84 million-worth of assets in those categories.
We are not looking at a phased sale of assets; we are looking at a closing down sale. It is not prudent, because the sales are taking place against a depressed property market, which will not give full value for the assets. It is not fair, because, in England, the new towns had a much more rational timetable in which to dispose of their assets, with the option of passing them to the New Towns Staff Commission if they were not disposed of. It is not in the long-term interests of the local residents to have such a rapid sale on such a short timetable.
How will the successor authority find the resources to meet the liabilities that it will merit? Currently, Livingston development corporation spends £1,355,000 on landscaping. That liability will descend on West Lothian district council or its successor local authority. Where will it find £1,355,000 to meet that additional liability if there are no assets left to be transferred?
When the Minister produced the White Paper, he suggested that voluntary organisations and charitable groups may run some of the community services in new towns and take them over with endowment packages. Again, that model was followed in England. Milton Keynes community trust took over most of the community services, but received 125,000 sq ft of industrial commercial property to pay for it.
I am glad that there is a current move in Livingston to form a Livingston foundation, which will maintain some of the town's identity after the development corporation is wound up, and which may also provide some kind of holding body for community assets. However, I must ask whether, given the target and the scale of the target for sale of assets, there will be anything left worth holding. Will there be any serious endowment package available, either for the local authority or for voluntary groups to maintain those community services?
The Minister has suggested that it will be possible to fund the local authority's extra liability through the revenue support grant. I do not wish to be unkind to the Minister, who is a pleasing man in his own way, and who also has the advantage of not having been in the Government throughout their period in office; but, considering the record of the Government over the past 15 years, and hearing the suggestion that we may look to the revenue support grant as the means of additional funds to meet additional liabilities, anybody would have severe difficulty maintaining a straight face. It would make a horse laugh.
The history of the Government in cutting the revenue support grant gives us no confidence that that represents a


long-term vehicle to provide for the additional liabilities that the local authorities will inherit. If the Minister is to insist on that as the way out of his problem, I must put it to him that, if that is to be accepted in good faith, he must separately identify what that money is, and he must ring-fence it, so that we can all see how much it is and what it is for. However, it would be much better if the Minister agreed to the English model of endowing the local authorities with assets from the new town, from which they can meet the costs of the liabilities.
I want to put one specific question to the Minister, and if he cannot answer it now, I should be happy if he would write to me again. It is a question for which I am anxious to have a reply, as are the local authorities.
In his letter to my hon. Friend the Member for East Kilbride (Mr. Ingram) on 29 March, the Minister said that one development corporation had reached a voluntary agreement through negotiation with the local authority about the transfer of assets, which would meet the liabilities from the additional costs imposed on the council when the development corporation was wound up.
That has happened once. If the other new town development corporations were to achieve a similarly negotiated package with their district councils, would the Minister also approve that? If he approved it, would he be willing to adjust his targets for the development corporations and asset sales to reflect the particular agreement with the district council?
I shall move on to housing before allowing my hon. Friends to make their contributions. My hon. Friends and I, including my hon. Friend the Member for Linlithgow, have repeatedly told Ministers over the years that it was vital that tenants should have the opportunity of transferring to the district council at the point of wind up. In fairness to the Minister, I should say that this is one area in which we have made progress. We secured an agreement from the Minister that, if the tenant opted for that transfer, he could have that choice.

Mr. Tam Dalyell: That was the promise from the beginning.

Mr. Cook: Indeed.
I regarded that as a fair offer that we had to win on a vote of the tenants, and I am prepared to go with it. But what is happening at Livingston breaks that promise.Under trickle transfer, any house that becomes vacant is transferred to a housing association. People on the waiting list get the tenancy of the house only if they accept the association as their landlord. That means that they have lost the opportunity of a tenancy with the district council for the future. No applicant on the Livingston development corporation waiting list—the applicants are often second-generation families who have been on the list for two or three years—can obtain a development corporation tenancy.

Mr. Dalyell: When I first represented Deans and Knightsbridge in 1962, there was a solemn promise that applicants would be able to obtain such a tenancy.

Mr. Cook: I am grateful to my hon. Friend for confirming that point from his own experience in the area that we both represent.
The Minister must accept responsibility. The minutes of his meeting with the Livingston development corporation in September confirm that he raised the matter. The

problem has arisen because the targets for the sale of houses obliges the Government to go for trickle transfer if the targets are to be met. How can he square the process of denying tenants the opportunity of an LDC tenancy, and therefore a district council tenancy, with his commitment that every tenant would have the opportunity on wind-up of a council tenancy?
I assure the House that the new towns of Scotland are a success story. I think that Ministers would take more credit for the success story if they did not find it uncomfortable to take credit for a public sector success story. Let the Minister understand that he cannot take credit for the success if he now puts it at risk, and that is what is happening.
For once, I invite the Minister to take pride in what he has helped to create, and to claim the success that has been built in the new towns as one that he partly helped to achieve. Having recognised that success and taken his part of the credit for it, he should think again about holding to a breakneck timetable that is leading to a forced fire sale of the assets of a new town.

Mr. Adam Ingram: I am grateful to my hon. Friend the Member for Livingston (Mr. Cook) for allowing me briefly to take up some of the points that he has made. I agree with all the arguments that my hon. Friend has advanced. The same arguments could apply to all the other four new towns with equal force in terms of housing and the disposal of assets.
The work forces that have been employed by all the new towns over the years have been crucial to the success of the new towns. All of us in Scotland have benefited from their input and from the way in which they have developed the new towns and enhanced the economic structure of the local area and the wider economic area. Yet, for the first time in 47 years since the new town of East Kilbride, which I represent, was established, the work force are now engaged in a policy of non-co-operation with their board. Incidentally, that board is trying to deliver for them in the areas in which they are arguing with the Scottish Office. I understand that that policy is beginning to extend to other new towns; it will be probably only a matter of time before it arrives on the doorstep of Livingston new town as well.
Why has the policy of non-co-operation suddenly been imposed? As my hon. Friend the Member for Livingston said, the reason is that the Government have reneged on a commitment they gave to the staff of East Kilbride new town in 1989, that there would be enhanced redundancy payments to retain the key personnel in that new town in the crucial period leading to the wind-up. Clearly, they are reneging on a promise and a commitment that they made.
Indeed, it is argued that they are reneging on an agreement that was reached with the Scottish Office. Morale among the staff in East Kilbride new town has collapsed, and it is collapsing all over the other new towns. Obviously, my hon. Friend the Member for Cunninghame, South (Mr. Donohoe) will comment on that with regard to his area.
I shall ask the Secretary of State one question on this matter. Why has the Scottish Office decided to renege on that promise, that commitment and that agreement? We know that the new towns cannot exist for ever. We know


that they must be wound up. We realise that there must be honour in the way in which that is carried out but that is not being delivered by the Scottish Office.
If the Secretary of State does not have the opportunity to respond to that question tonight, he should write to me in detail, because a previous letter that he wrote to me on the matter has been no help whatever.

Mr. Brian Donohoe: I also thank my hon. Friend the Member for Livingston (Mr. Cook) for allowing me briefly to contribute to the debate. I draw the attention of the Minister to the fact that, like staff in Livingston development corporation, the staff in Irvine development corporation are unhappy. Indeed, the Minister may know that today the staff were balloted to take part in industrial action simply because the Government have welshed on the redundancy package which was on offer, and which had been on offer for a great number of years. That is shameful action by the Government.
I am concerned that the wind-up programme in Irvine, as in Livingston and elsewhere, will lead to lowering of staff morale to such an extent that the work of the development corporation —there is still work to be undertaken by the corporation—will be affected. Outstanding projects that will be undertaken in the remaining two years will be unsatisfactorily dealt with by the staff, simply because they will not be operating as staff committed to their task before the wind-up is due.
In the time that I have, I simply ask the Minister to give the staff a commitment and resolve the situation with regard to the redundancy package. I await his answer with some interest.

The Parliamentary Under-Secretary of State for Scotland (Mr. Allan Stewart): First, I congratulate the hon. Member for Livingston (Mr. Cook) on obtaining this Adjournment debate on a subject that is clearly of the greatest importance to him, and to the constituents of the hon. Members for Linlithgow (Mr. Dalyell), for East Kilbride (Mr. Ingram) and for Cunninghame, South (Mr. Donohoe). I have no doubt that the hon. Member for Fife, Central (Mr. McLeish), who is also a new town Member of Parliament, would have been in his place if he had not been injured in a contest with the press earlier today. I am glad that his injuries are purely temporary.
I hope to return to this point, but I am absolutely astonished that the hon. Members for East Kilbride (Mr. Ingram) and for Cunninghame, South (Mr. Donohoe) did not refer to the findings of the Public Accounts Committee on precisely the matter that they raised.
I shall endeavour to reply to all of the points which were raised by the hon. Members. If I am unable to do that in the available time, I give them an absolute assurance that I will write in detail to them on the matters as soon as I can.
The hon. Member for Livingston, in a well-considered speech, made the major criticism that somehow the wind-up of the new towns was being pursued at a great pace. He was reflecting the phrase of some others about the dash for cash in the wind-up of the new towns. I must say that the wind-up was announced when I was the new towns

Minister some 10 years ago. That was followed by a Green Paper, by a White Paper and then, of course, by the 1990 legislation.
The hon. Member for Livingston was right to point out that the wind-up has been accelerated. That has been done essentially for two major reasons. The first is the rapid emergence of Scottish Enterprise and the local enterprise companies, and the success of Locate in Scotland. Collectively, those bodies will have the prime responsibility for the future economic development of lowland Scotland.
The second is the opportunity of local government reorganisation in Scotland. We want to ensure that the new authorities—in the hon. Gentleman's case, that will be West Lothian—begin life with all their functions essentially on board.
The hon. Gentleman also suggested that this was Treasury-driven. Under the present rules—which have, of course, been changed—the cash received by the Scottish Office from the sale of the assets of the Scottish new towns remains, in effect, within the Scottish budget. It is spent elsewhere in Scotland. [Interruption.] I must say to hon. Members that there are other areas in Scotland where there are economic, industrial and housing problems, and that is where the money is, in effect, going.
The hon. Member for Livingston was right to point to the success of the new towns as part of Scotland's strategic economic and industrial policy. I can assure him that Scottish Enterprise will continue that policy. It purchased some £10.3 million-worth of strategic land and buildings from the new towns in 1993–94, and further acquisitions are planned in this financial year; those will include Eliburn West and Rosebank in relation to Livingston.
That kind of transfer will enable Scottish Enterprise, together with the local enterprise bodies and Locate in Scotland, to maintain the momentum of economic development in the new towns.
The hon. Member was also right to refer to the fact that what is important is not just the transfer of physical assets but the personnel and expertise of the staff of the development corporations. It is encouraging that, in relation to Fife, the regional council, the development corporation and the local enterprise company have reached an agreement on the transfers for the future of the organisation Invest in Fife.
The hon. Gentleman rightly pointed out that the possibility of establishing a local development company for Livingston was not being pursued. I can tell him that the board is considering the options, and that we look forward to receiving its specific proposals by 31 October.
One of the hon. Gentleman's main points concerned housing. He will know that, in Livingston, the home ownership rate is close to 55 per cent., and that tenants in the new towns have taken substantial advantage of the right-to-buy and rent-to-mortgage schemes; he will also know that, in the past year, Livingston spent some £3.5 million on repairs and maintenance of stock, and some £6.5 million on modernisation, particularly in Craigshill. I emphasise those figures because they show a continuing commitment to the improvement of housing stock in the development corporations.
As for the future, and the hon. Gentleman's specific point about my commitment on "trickle transfer", I can tell him that it means that those on the waiting list have the option of moving to housing owned by housing associations, and therefore have the rights of housing


association tenants. That is in no way incompatible with the policy that I announced. I am grateful to the hon. Gentleman for praising the policy, if that is not putting it too strongly, of giving existing tenants of corporation housing stock the right to choose the successor at wind-up, which they can do by means of a secret ballot.
We want an effective choice between local authorities and housing associations. I think that in the new towns and, more broadly, in Scotland, housing associations represent a genuine choice for those who wish to remain in tenanted accommodation.

Mr. Robin Cook: I do not object to the choice; indeed, I accept, as a reasonable challenge, that we should persuade tenants to opt for the district council, given the choice between that and a housing association. What I object to is that the fact that people who have been on the waiting list for two years and are on the way to securing a tenancy now do not have that choice; they have only the option of a housing association tenancy, with no future opportunity of opting for the district council. Why not suspend the trickle transfer, so that those people can also have the choice that the Minister is holding out?

Mr. Stewart: I am saying what I have always said—that the choice is at the point of wind-up. I am also saying that I think it right to encourage diversification of tenure in the new towns, as elsewhere, in the period leading to wind-up.
The hon. Gentleman asked me about the resources available to local authorities in a number of contexts. I hope that I can reassure him on housing: the Government will provide local authorities that are successful in the ballot of tenants with additional borrowing consent up to the level of the purchase price.
Hon. Members also raised the question of staff and the present dispute, which I regret very much. For a long time, I have had the highest respect for the staff of Scotland's new towns.
I remind the House of what the Public Accounts Committee said in its report on the Development Board for Rural Wales. It said that substantial payments in lieu of notice should be avoided. That view was accepted by the Government. The Treasury response said:
Payments in lieu of notice should be made only where it has not been feasible for the employer to give the employee appropriate notice of termination of employment or to allow him or her to work until the end of the period of notice.
That is the background to the present dispute. It follows precisely the recommendations of the Public Accounts Committee. We are taking legal advice—

The motion having been made after Ten o'clock and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at fifteen minutes past Twelve midnight.